Question

Q3…Abbigail wish to establish a trust fund from which her daughter can

withdraw $6,000 every six months for 15 years, when she reach 16 years old. At

the end of which time she will receive the remaining money in the trust, which

you would like to be $25,000. The trust will be invested at 6% per annum

compounded semi-annually. How large should the trust be?

Q4…It is now January 1, 2018. You plan to make 5 deposits of $200 each, one

every 6 months, with the first payment being made today. If the bank pays a

nominal interest rate of 10%, but uses semi-annual compounding, how much will

be in your account after 8 years?

Answer 1

A	B	C	D	E	F	G	H	I	J	K	L	M	N
2		Q3)
3		Assuming the current age of daughter is 0 Years.
4		Therefore the payment of $6000 every six month will start after 16 years.
5
6		The trust fund should be the present value of the future payments.
7
8		Years after which payments starts	16
9		Semi-Annual amount received	$6,000
10		Period of payment	15	Years
11		Number of Semi-annual payments	30
12		Interest rate	6%	(Compounded Semi-annually)
13		Semi-annual interest rate	3%
14		Remaining amount of the trust	$25,000
15		Cash Flow can be represented as follows
16		Semi-annual period	0	1	…	31	32	33	34	35	…	61
17		Cash flow					$6,000	$6,000	$6,000	$6,000	$6,000	$31,000
18
19		Present Value of the payment	=$6000*(P/A,3%,30)*(P/F,3%,31)+$25000*(P/F,3%,61)
20			$57,039.23	=D9*PV(D13,D11,-1,0)*(1/((1+D13)^G16))+D14*(1/((1+D13)^G16))
21
22		Hence the value of the trust fund is	$57,039.23
23