Parents decided to set aside money for their child's higher education. The objective is to provide $45,000 in today's dollars after 12 years. Their financial analyst forecasted that the average annual inflation to be 4.5% for the next 12 years. A bank offered a medium risk mutual fund over the next 12 years. The parents will deposit one sum of money now and it is to be cashed by the child after 12 years. If the amount of money available now for deposit is $50,000, what is the minimum rate of return (interest rate) on the educational investment account so that the parents can achieve their objective?

Parents decided to set aside money for their child's higher education. The objective is to provide $45,000 in today's dollars after 12 years. Their financial analyst forecasted that the average annual inflation to be 4.5% for the next 12 years. A bank offered a medium risk mutual fund over the next 12 years. The parents will deposit one sum of money now and it is to be cashed by the child after 12 years. If the amount of money available now for deposit is $50,000, what is the minimum rate of return (interest rate) on the educational investment account so that the parents can achieve their objective?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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A mother is thinking about funding her daughter’s medical education in 6 years when she is expected to enrol at UWI, St. Augustine. She opens a special savings account, where she can receive a lump sum in 6 years. If she is desirous of receiving $50,000 in 6 years when her daughter is matriculating, how much would you advise her to deposit in the savings account monthly if annual interest rate is 7%? Show all working.
Sean expects to receive $300,000 in 5 years from a trust fund. If a bank loans money at an interest rate of 8.2%, how much money can he borrow from the bank on the basis of this information?
Your daughter is 8 years old today. You are worried about paying for her college tuition, which you estimate will be $20,000 per year (after scholarships). You decide to start a college savings fund by depositing an equal amount in the bank at the end of each of the next 10 years. At the end of years 11, 12, 13 and 14, you want to withdraw $20,000 in order to pay for the tuition. An interest rate of 8% APR compounded annually is assumed. How much do you have to deposit at the end of each of the next 10 years in order to pay for the tuition costs?
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Margaret is planning to invest up to $22,000 in certificates of deposit at City Bank and People's Bank. She wants to invest at least $2000 but no more than $14000 at City Bank. The interest is 6% at City Bank and 7% at People's Bank. This is simple interest for one year. How much should she invest in each bank to maximize her income? What is the maximum income? y
you have just won the lottery, and wish to ensure that will have $350,000 in 11 years to send your child to college. if your bank pays 4.46%, hours much must you deposit today to accumulate these funds?
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A couple decided on the following saving plan for their newborn child 0 years old. Each quarter after the child is born, they will deposit $2,125 into a savings account paying 7.35% interest compounded quarterly. How much money will be in the account when the child turns 18? Hint: Total of 18 years. Round answer to nearest cent.

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