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Good morning,
l am facing challenges in answering the following question , kindly assist the best way you can.Question
Sydney is considering making a monthly investment for her son who will be five years old on his next birthday. She wishes to make payments until his 18th birthday and intends to pay $50 per month into an account yielding an APR of 12.68%. She plans to start making payments into the account the month after her son’s fifth birthday.How much will be in the account immediately after the final payment has been made?
There are several ways of getting the answer, but the most efficient way is as follows:
1. Calculate the equivalent monthly interest rate (I explain how to do this in my free lectures). It is 1.013% per month.
2. Calculate the PV of the monthly annuity as on her son’s 5th birthday. She will be making monthly payments for 156 months (13 years from the 5th birthday to the 18th birthday). You will need to use the formula for this – 156 periods at 1.013% per period. (Again I explain how to use the formula in my free lectures).
3. Calculate the value at the end of 13 years, but multiplying the PV calculate in (2) by 1.1268^13.
I don’t know where you found this question, but it is very unlikely that anything like this would be asked in Paper MA (and presumably you have an answer anyway in the same book in which you found the question?)
many thanks sir
l got the question from one of the mock exams and the answer was not well explained. You have really made it clearer,thank you so much.
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