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Classify the problem below using the funding categories A to F You do NOT need to...

Classify the problem below using the funding categories A to F You do NOT need to solve the problem just classify it. Funding Type

A. Lump Sum Funds Lump Sum

B. Lump Sum Funds Ordinary Level Annuity

C. Lump sum funds delayed level annuity

D. Ordinary Level Annuity funds lump sum

E. Ordinary Level Annuity funds delayed level annuity

F. Delayed Level Annuity funds delayed level annuity

1.You plan on attending graduate school for 2 years starting 5 years from now. Each year of graduate school will cost you $25,000. You begin saving for graduate school starting 2 years from now and save for 3 years. How much must you invest each year, starting two years from now, for 3 years such that your investment will grow to just cover the cost of graduate school? Your investments earn 4% APR (compounded annually).

2.If you earn 6% per year on your investments, how much do you have to invest today to “Fund” a payment of $500 due in 3 years?

Solutions

Expert Solution

1 F.DELAYED LEVEL ANNUITY FUNDS DELAYED LEVEL ANNUITY
Pmt Annual amount required per year $25,000
Nper Number of years 2 (Year5 and 6)
Rate Interest rate 4%
Type Beginning of year withdrawal 1
PV Amount of savings required at end of year5 $49,038.46 (Using PV function of excel with Rate =4%, Nper=2, Pmt=-25000,Type=1)
FV Future Value of Savings at end of year5 $49,038.46
Nper Number of years of savings 3 (Year2,3 and4)
Rate Interest rate 4%
Type Beginning of year savings 1
PMT Amount of savings required per year $15,105.19 (Using PMT function of excel with Rate =4%, Nper=3, Fv=-49038.46,Type=1)
2 A. Lump sum Funds Lump Sum
Amount required =500/(1.06^3) $419.81

jeff jeffy answered 7 months ago
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