Fin401 M3 A2

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excellent job with this assignment.  Your answer for Part D is slightly off, so see solution below. Week 3 Solutions | | |

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Issue A | | |

From Appendix A:

FVA = A × FVIFA (5%, 20 periods)

FVA = $500 × 33.066 = $16,533.00

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Issue B: | | |

From Appendix D:                                            PVA = A × PVIFA (7%, 20 periods)

PVA = $75,000 × 10.594 = $794,550

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Issue C: | | |

Deferred annuity—From Appendix D                        PVA = A × PVIFA (i = 7%, 20 periods)

PVA = $75,000 × 10.594 = $794,550

Now, discount back this value for three periods

PV = FV × PVIF (i = 7%, 3 periods) Appendix B

PV = $794,550 × 0.816 = $648,589.48

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Issue D | | |

Solution | | |

Step 1:  Calculate the tuition amounts at the time the tuition will be paid. | | |

       T1 = $11,000(FVIF7%,6) = $16508 | | |

       T2 = $11,000(FVIF7%,7) = $17634 | | |

       T3 = $11,000(FVIF7%,8) = $18900 | | |

       T4 = $11,000(FVIF7%,9) = $20224 | | |

Step 2:  Calculate Mary’s Contribution to the tuition pool: |

       T1 = $11,000(FVIF7%,6) = $16508 = $8254 | | |

       T2 = $11,000(FVIF7%,7) = $17634 = $8817 | | |

       T3 = $11,000(FVIF7%,8) = $18900 = $9450 | | |

       T4 = $11,000(FVIF7%,9) = $20224 = $10112 | | |

Step 3:  Find the amount that needs to be in the bank at the time Beth starts college: | | |

       T1 = $11,000(FVIF7%,6) = $16508 = $8254                              =     $8254 |

       T2 = $11,000(FVIF7%,7) = $17634 = $8817 = 8817(PVIF4%,1) =     $8479 |

       T3 = $11,000(FVIF7%,8) = $18900 = $9450 = 9450(PVIF4%,2) =     $8737 |

       T4 = $11,000(FVIF7%,9) = $20224 = $10112 = 10112(PVIF4%,3) = $8990 |

$34,460 | | |...