The way in which the futures markets can be used to decrease interest rates and input price risk. Introduction: A contract between a buyer and a seller to buy and sell an asset for a predetermined price on a specified day in the future is termed as future contract . A futures contract is traded in stock exchanges.

Question

Pam and Jim are saving money for their two children who they plan to send to university.The eldest child will enter university in 5 years while the younger will enter in 7 years. Each child is expected spend four years at university. University fees are currently R20 000 per year and are expected to grow at 5% per year. These fees are paid at the beginning of each year.Pam and Jim currently have R40 000 in their savings and their plan is to save a fixed amount each year for the next 5 years. The first deposit taking place at the end of the current year and the last deposit at the date the first university fees are paid.Pam and Jim expect to earn 10% per year on their investments.What amount should they invest each year to meet the cost of their children’s university fees?

Answer 1

Question

Chapter 18, Problem 4Q

Summary Introduction

To discuss: The way in which the futures markets can be used to decrease interest rates and input price risk.

Introduction:

A contract between a buyer and a seller to buy and sell an asset for a predetermined price on a specified day in the future is termed as future contract. A futures contract is traded in stock exchanges.

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