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Question: the parents of three children aged 1 3 and 6...

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The parents of three children aged 1, 3, and 6 wish to set up a trust fund that will pay 25, 000 to each child upon attainment of age 18, and 100, 000 to each child upon attainment of age 21.

(a) If the trust fund will earn nominal annual interest rate i^(2) = 7.6% compounded semiannually, what amount must the parents now invest in the trust fund?

(b) Assume that the trust fund will grow at nominal annual interest rate of 3.2% convertible monthly for the first four years, effective annual interest rate of 3.5% for the next year, nominal annual rate of discount of 4.5% compounded quarterly for the next seven years and effective annual rate of discount at 5.25 % thereafter. What amount must the parents now invest in the trust fund in order to pay 25, 000 to the child aged 6 upon attainment of age 18, and 100, 000 to the child aged 6 upon attainment of age 21.

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