To complete your degree and then go through law school, you will need $12,000 today and $38,000 per year for 5 years. Your rich Aunt offered to put you through school, and she will deposit in a bank paying 5.5% interest a sum of money that is sufficient to provide the $12,000 you need today and the 5 payments of $38,000 each. Her deposit will be made today.
a) How large must her deposit be today?
b) How much will be in the account immediately after you make the second $38,000 withdrawal in two years?
c) If you decide to drop out of school today and not to make any of the six withrawals, but keep your aunt's money in the account, how much would you have in your account at the end of 7 years assuming you will continue earning 5.5%?