Make a time graph, marking 'now', yr1, yr2, .... yr7
place x at now, yr1, yr2, yr3, 7500 at each of yr4, yr5, yr6, and yr7
Pick the end of yr3 as your focal point
At that point in time , the Amount of the deposits = Present Value of withdrawals
x( 1.036^4 - 1)/.036 = 7500(1 - 1.036^-4)/.035
x( 1.036^4 - 1) = 7500(1 - 1.036^-4)
tell me what you get?
Is your answer reasonable ?
In 4 years, your son will be entering college and you would like to help financially. You decide to create a college fund and make four annual deposits, starting now. In four years, you would like your son to be able to make four annual withdrawals of $7,500 from the fund (at the beginning of each year) that will cover his annual tuition. If the college fund earns 3.6% compounded annually, how much must you deposit at the beginning of each year? Assume tuition remains the same for the four years your son is attending college.
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