Annuity Plan
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Mrs. S has 4 grandchildren, the oldest will enter college in 10 years. she wants to help pay for their college educations by giving each child $15,000 @ the beginning of each school year for each of the 4 years required to finish college. Toward that end, she just sold a small house she had owned for $40,000 & has invested the proceeds of that sale in a mutual fund that has historically generated a 9% average annual return. In terms of age, the first child will begin school in 10 years, the second 2 years later, the third one year after that, and the fourth two years after the third.
1. Find out whether or not the proceeds of the home will provide enough to meet the need desired & to create an ordinary annuity plan to build the fund to cover any shortfall in funds.
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Solution Summary
Calculates the value of annuity.
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Mrs. S has 4 grandchildren, the oldest will enter college in 10 years. she wants to help pay for their college educations by giving each child $15,000 @ the beginning of each school year for each of the 4 years required to finish college. Toward that end, she just sold a small house she had owned for $40,000 & has invested the proceeds of that sale in a mutual fund that has historically generated a 9% average annual return. In terms of age, the first child will begin school in 10 years, the second 2 years later, the third one year after that, and the fourth two years after the third.
1. find out whether or not the proceeds of the home will provide enough to meet the need desired & to create an ordinary annuity plan to build the fund to cover any shortfall in funds.
PVIF= Present Value Interest Factor
PVIFA= Present Value Interest Factor for an Annuity
They can be read from tables or calculated ...
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