Question #51312

You have been accepted to study international economics at the International
Banking College (IBC) in Kuala Lumpur. You will need RM10,500 every 6 months
(beginning today) for the next three years to cover tuition and living expenses. Mom
and Dad have agreed to pay for your education, and want to make one deposit today
in a bank account earning 6% interest, compounded semiannually. How much must
they deposit now so that you can withdraw RM10,500 at the beginning of each
semester over the next 3 years?

Expert's answer

You will need RM10,500 every 6 months for 3 years, 6% interest, compounded semiannually. To calculate how much they must deposit now so that you can withdraw RM10,500 at the beginning of each semester over the next 3 years we use the formula of annuity: PV = 10,500*(1 - 1.06^(-6))/0.06 = RM 51,631.91.

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