3) Your child was born today and you have decided to put money into his educatio

Question

3) Your child was born today and you have decided to put money into his education fund starting today (annuity due). Your account earns 4.5% compounded monthly. If you want there to be $200,000 for him in the account on his 18th birthday how much do you have to contribute every month? Answer: _________________________

4) What is the combined present value of $5,000 to be received in 5 years, $15,000 to be received in 10 years, and $25,000 to be received in 15 years with an interest rate of 9.0%? Answer: _________________________

5) Your parents have decided they want to put money away today so that beginning on your 45 th birthday that you get $10,000 for 35 years. Today you turned 21. If your parents account guarantees 8.80%, how much money do they need to put in the account today? Answer: _________________________

6) What is the present value of a perpetuity that pays $2,500 a year, if we expect interest rates to be 12.75% forever? Answer: _________________________

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Explanation / Answer

Future value of annuity due = (1+r)×P[(1+r)^n-1]÷r

r is interest rate

P is payment per period

n is number of payments

$200,000 = (1+(4.5%÷12))×P[(1+(4.5%÷12))^(18×12)-1]÷(4.5%÷12)

Monthly depost, P = $600.4

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