The parents of a disabled child are setting up a trust fund so that the child...

The parents of a disabled child are setting up a trust fund so that the child will have guaranteed income of $3000 per month when he turns 21 and they want him to be able to draw on this fund for 20 years. They started investing in the fund quarterly when the child was born and wanted to have it funded within 14 years. We'll assume their money is earning 5.5% interest, compounded quarterly both during the accumulation phase and the annuitization (withdrawing) phase. Hint: This problem requires solving 2 separate problems. Notice that one is quarterly and one is monthly. Round to the nearest cent. How much money will they need to deposit each quarter in order to allow their son to withdraw the desired amount at age 21?

Expert Solution

jeff jeffy answered 1 year ago

Time value of money A parent is setting up a trust fund for his daughter which...

Time value of money A parent is setting up a trust fund for his daughter which is expected to be worth GH¢200,000 in ten years when she is ready to marry. Given that the relevant discount rate is 12% per annum, what should be the onetime investment that this parent should make today to achieve his perceived target. Assume monthly compounding. The parent has the alternative of making ten annual contributions into the fund that will grow to GHS 200,000...

Luca Lucchesi has $10 million today and is setting up a trust fund for his 2...

Luca Lucchesi has $10 million today and is setting up a trust fund for his 2 children. If r=4%, how much should the fund pay each child next year? Mr. Lucchesi is also thinking that his children need to learn to make their own mark in the financial world. So he is thinking of withholding the trust fund payments until 5 years (i.e. t=5). Determine the perpetual annual payments that could be supported in such a scenario.

Proud parents wish to establish a college savings fund for their newly born child. Monthly deposits...

Proud parents wish to establish a college savings fund for their newly born child. Monthly deposits will be made into an investment account that provides an annual rate of return of 4% compounded monthly. Four withdrawals from the savings fund will be made to pay for college expenses. The estimated need is $25,000 when the child turns 18 years old; $28,000 at 19 years; $31,000 at 20 years; and $34,000 at age 21. The last monthly payment to the investment...

1.A wealthy relative has set up a trust fund for you. In five years, you will...

1.A wealthy relative has set up a trust fund for you. In five years, you will receive the first of 300 monthly payments of $2500. You would like to have the money now to start a business. You visit Mr. Hammerhead, the loans officer, and he agrees to lend you money if you sign over all of your trust payments to the bank. How much would you receive if the bank charges interest at 6% compounded monthly?

A child wants to pump up a bicycle tire so that its pressure is 1.2 ×...

A child wants to pump up a bicycle tire so that its pressure is 1.2 × 105 Pa above that of atmospheric pressure. If the child uses a pump with a circular piston 0.035 m in diameter, what force must the child exert? Select one: A. 120 N B. 89 N C. 76 N D. 54 N E. 240 N

Holly Krech is planning for her retirement, so she is setting up a payout annuity with...

Holly Krech is planning for her retirement, so she is setting up a payout annuity with her bank. She wishes to receive a payout of $1,700 per month for twenty years. (Round your answers to the nearest cent.) (a) How large a monthly payment must Holly Krech make if she saves for her payout annuity with an ordinary annuity, which she sets up thirty years before her retirement? (The two annuities pay the same interest rate of 7.8% compounded monthly.)...

Is this child qualify as a qualifying relative or child on her parents tax return? Lauren...

Is this child qualify as a qualifying relative or child on her parents tax return? Lauren is 18 and works as an actress. She has done this for several years, making $150,000 a year. However, her parents have placed all of her income in a trust account, and Crystal and Christopher continue to support her. She does not live at home, except during holidays.

Contrast the advice that should be given about child-rearing to the parents of an inhibited child...

Contrast the advice that should be given about child-rearing to the parents of an inhibited child and the parents of an uninhibited child.

Max has interest income of $5,000 annually from a trust fund set up per his grandfather...

Max has interest income of $5,000 annually from a trust fund set up per his grandfather Ed’s will. Will Max’s income be taxed? If so, how? Is there a way to shift income from the parents to the child and would it be a good idea in this case? Why or why not

George Jefferson established a trust fund that will provide $173,500 per year in scholarships. The trust...

George Jefferson established a trust fund that will provide $173,500 per year in scholarships. The trust fund earns an annual return of 2.2 percent. How much money did Mr. Jefferson contribute to the fund assuming that only income is distributed?

Question