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Ms. Smith has two grandchildren, Adam and Evelyn. Adam will be enrolling in college on September 1, 2003, and Evelyn will be enrolling in college on September 1, 2005. Ms. Smith wishes to give both Adam and Evelyn $1,000 at the beginning of each of their four years of college. Ms. Smith will fund these payments by making five level annual deposits of P into an account earning an annual effective interest rate of 7%, with the first deposit on September 1, 1998. Determine the value of P.

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batolisis

Answer:

value of P = $1103 .46

Explanation:

interest rate ( cost ) = 7% = 0.07

Given that Ms smith wants to start making Five level annual deposits for P starting from 1998

cash flows = $1000

discounted cash flows = cash flow / ( 1 + 0.07 )^year

The cumulative cash flow as at 1998 =  $4,841.13

hence :

Pv ( present value ) = - 4841.13 , Fv ( future value ) = 0

N ( number of payments ) = 5 ,  Interest rate = 7%

using excel function ( =PMT(0.07,5,-4841.13,0,1)  ) the value of P = $1103.46

attached below is a tabular solution to the given

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