You have just won a substantial judgment in a personal injury lawsuit.( your sel

Question

You have just won a substantial judgment in a personal injury lawsuit.( your self was ruined when you were insulted by the clown mascot at fast food establishment) are you embark on a serious party to celebrate, you want to set aside funds for you future

1. three years from today you will need 50000 for the down payment on a house.

2. Your twins, Tritan and Isolde, will start college 15 years form todays. You would like to have 100000 at that time to help pay for their college costs

3. You plan to retire 40 years form today , you believe that 3000000 would be sufficient to meet your needs during retirement.

4. You want to establish a perpetual scholarship fund( FOR children jnjured by mascot) that pay 5000per year If you can invest in an account that pay 7% per year( with annual compounding) how much total of your richly deserved judgment should you set aside to meet these 4 needs?( Hint, compute the present value of each need

Explanation / Answer

Computation of present values:

1. Principal x FVIF7%, 3years = 50,000

Present value = 50,000 / 1.2250 = $ 40,816

2. Present value of $ 100,000 = 100,000 x PVIF7%, 15 years = 100,000 x 0.3624 = $ 36,240

3. Present value of amount required at requirement = FV x PVIF7%, 40 years = 3,000,000 x 0.0668 = $ 200,400

4. Present value of a perpetuity = Annuity / Interest rate = 5,000 / 0.07 = $ 71,429

Therefore, total amount to be set aside for meeting the four needs = $ 348,885

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