question archive Starting next year, your daughter Maryam will need $45,000 annually for 3 years to complete her Master’s degree in a field of dentistry called orthodontics, at the New York University in the USA
Starting next year, your daughter Maryam will need $45,000 annually for 3 years to complete her Master’s degree in a field of dentistry called orthodontics, at the New York University in the USA
Subject:FinancePrice:3.86 Bought33
Starting next year, your daughter Maryam will need $45,000 annually for 3 years to complete her Master’s degree in a field of dentistry called orthodontics, at the New York University in the USA. Therefore, exactly one year from today, Maryam will need to make her first withdrawal of $45,000. Since you like to plan your family’s finances well in advance, you have decided to deposit a specific amount today in a local HSBC branch, from which Maryam can receive the needed $45,000 every year. This bank account will be paying a 6% annual interest rate for the duration of your investment there. When answering the questions that follow, show all formulas used, workings, notes, and calculations, along with the final answer.
Using the relevant time value of money concepts, determine how large must this deposit has to be. (1 point)
Calculate how much money Maryam will have in her HSBC bank account right BEFORE she makes the first withdrawal. (1 point)
Estimate how much money Maryam will have in her HSBC bank account right AFTER she makes the first withdrawal. (1 point)
Compute how much money Maryam will have in her HSBC bank account right BEFORE she makes the last withdrawal. (1 point)
Purchase A New Answer
Custom new solution created by our subject matter experts
GET A QUOTE
Answer Preview
|
Present Value (Present Value Factor * $45000) Do it for each year with each present value factor. |
Present Value Factor For year 1 (1/{(1+0.06)^1}) |
Year 1 |
Present Value Factor For year 1 (1/{(1+0.06)^2}) |
Year 2 |
Present Value Factor For year 1 (1/{(1+0.06)^3}) |
Year 3 |
|
US$ 1,20,285.537726 |
0.943396226415094 |
US$ 45,000.00 |
0.88999644001424 |
US$ 45,000.00 |
0.839619283032302 |
US$ 45,000.00 |
- Large Deposit to be made = $120,285.537726
- Present Value Factor = Cash Flow/ ((1+i)^n)
- Present Value = (Cash flow * Present Value Factor)
- Total Amount to be deposited = Present Value of CF1 + Cf2 + Cf3
- Steps explained above in the table
- Present Value (PV) For year 1: (0.94339*45000)
- PV For the year 2: (0.889996*45000)
- PV For year 3: (0.83961*45000)
- Large Deposit = PV1 + PV2 + PV3
2) Amount of Money Maryam will have right before her first withdrawal = Present Value at T=0; Large Deposit * (1+i)^1
= $120,285.537726 * (1.06^1)
Amount in Maryam's Account just before first withdrawal= $127,502.66998
3) Amount of money in Maryam's bank account after 1st withdrawal = Amount before withdrawal (Found above) - $45,000
= $127,502.66998 - $45000
Amount after First Withdrawal=$82502.66998
4)Amount before last withdrawal = $45,000
The answer is 45,000 because we have discounted all the total amounts in Answer 1 above to have 45000 exactly for all three years and the Amount remaining should be exactly 45000 before the last withdrawal (shown below)
|
Amount Before First Withdrawal |
US$ 1,27,502.670 |
|
Amount after 1st Withdrawal |
US$ 82,502.670 |
|
Amount before 2nd withdrawal (82.502*1.06) |
US$ 87,452.830 |
|
Amount After 2nd Withdrawal (87452.830 - 45000) |
US$ 42,452.830 |
|
Amount before 3rd withdrawal (42452.830*1.06) |
US$ 45,000.000 |
