Parents deposit $6,000 into a savings account at the end of each year for 22 years to help their child pay for college. The savings account pays 4% interest per year, compounded monthly. The child withdrawals an equal sum twice per year while in college (years 19 through 22). After the last withdrawal at the end of year 22, there is $10,000 remaining in the account. How much was each semi-annual withdrawal in year 19 through 22? Express your answer in $ to the nearest $100.
The nominal interest rate is the rate that is quoted or advertised for a loan or an investment, without taking into account the effect of compounding. It is the rate at which interest is paid or earned on a loan or investment, before adjusting for the impact of compounding.
The effective interest rate is the actual rate of interest that a borrower pays on a loan or an investor earns on an investment, taking into account the effect of compounding. It is the true cost or return of a loan or investment, considering the frequency and timing of interest payments.
The effective interest rate is usually higher than the nominal interest rate because compounding can cause the balance of a loan or investment to grow faster over time. The difference between the nominal interest rate and the effective interest rate is a measure of the impact of compounding on the cost or return of a loan or investment.
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