1. It is now January 1, 2015. Tom and Jerry are cousins who were both born on January 1, 1985. Both turned 30 today. Their grandfather gave Tom $4,000 on his 25th birthday, January 1, 2010, putting the funds into a trust that will be paid to Tom on his 70th birthday, January 1, 2055. Each year since 2010, the grandfather put an additional $4,000 in the account on Tom's birthday, and the grandfather's own trustee will continue making the $4,000 payments until January 1, 2055, when a 46th and final $4,000 contribution will be made on Tom's 70th birthday. The grandfather wants Tom to work, not be a "trust fund baby," but he also wants to ensure that Tom is well provided for in his old age. The grandfather has until now has been disappointed with Jery, hence has not given him anything, but they recently reconciled, and the grandfather has decided to make an equivalent provision for Jerry. He will make the first payment to a trust for Jerry today, and he has instructed his trustee to make additional annual payments each year until January 1, 2055, when the 41st and final payment will be made. If both trusts earn an annual return of 10%, how much must the grandfather put into Jery's trust to enable him to receive the same amount as Tom on January 1, 2055, when they reach age 70?
1. It is now January 1, 2015. Tom and Jerry are cousins who were both born on January 1, 1985. Both turned 30 today. Their grandfather gave Tom $4,000 on his 25th birthday, January 1, 2010, putting the funds into a trust that will be paid to Tom on his 70th birthday, January 1, 2055. Each year since 2010, the grandfather put an additional $4,000 in the account on Tom's birthday, and the grandfather's own trustee will continue making the $4,000 payments until January 1, 2055, when a 46th and final $4,000 contribution will be made on Tom's 70th birthday. The grandfather wants Tom to work, not be a "trust fund baby," but he also wants to ensure that Tom is well provided for in his old age. The grandfather has until now has been disappointed with Jery, hence has not given him anything, but they recently reconciled, and the grandfather has decided to make an equivalent provision for Jerry. He will make the first payment to a trust for Jerry today, and he has instructed his trustee to make additional annual payments each year until January 1, 2055, when the 41st and final payment will be made. If both trusts earn an annual return of 10%, how much must the grandfather put into Jery's trust to enable him to receive the same amount as Tom on January 1, 2055, when they reach age 70?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:1. It is now January 1, 2015. Tom and Jerry are cousins who were both born on January 1,
1985. Both turned 30 today. Their grandfather gave Tom $4,000 on his 25th birthday,
January 1, 2010, putting the funds into a trust that will be paid to Tom on his 70th birthday,
January 1, 2055. Each year since 2010, the grandfather put an additional $4,000 in the
account on Tom's birthday, and the grandfather's own trustee will continue making the
$4,000 payments until January 1, 2055, when a 46th and final $4,000 contribution will be
made on Tom's 70th birthday. The grandfather wants Tom to work, not be a "trust fund
baby," but he also wants to ensure that Tom is well provided for in his old age.
The grandfather has until now has been disappointed with Jery, hence has not given him
anything, but they recently reconciled, and the grandfather has decided to make an
equivalent provision for Jerry. He will make the first payment to a trust for Jerry today,
and he has instructed his trustee to make additional annual payments each year until January
1, 2055, when the 41st and final payment will be made. If both trusts earn an annual return
of 10%, how much must the grandfather put into Jerry's trust to enable him to receive the
same amount as Tom on January 1, 2055, when they reach age 70?
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