Question

A mother wants to give her two children curently aged 8 and 5 money for their birthdays. She wants to give them each R5000 at 13, R7000 at 16, and R10 000 at 18. The bank is offering her interst of 11,2% p.a compounded monthly. What must she invest now so that the children can get teir future birthday presents.

Answer 1

Does she invest every year, or just a single year?

Answer 2

She invests just once

Answer 3

Use the formula: FV = PV (1+i%)^n
for the child aged 8 now
let x1 be the amount she needs to invest to get 5000
5000 = PV [1+(11.2%/12)]^ [(13-8)x12]
x1 = 5000 / [1+(11.2%/12)]^ [(13-8)x12]
let x2 be the amount she needs to invest to get 7000
7000 = PV [1+(11.2%/12)]^ [(16-8)x12]
x2 = 7000 / [1+(11.2%/12)]^ [(16-8)x12]
let x3 be the amount she needs to invest to get 10000
10000 = PV [1+(11.2%/12)]^ [(18-8)x12]
x3 = 10000/ [1+(11.2%/12)]^ [(18-8)x12]
Sum of money she needs to invest for her child aged 8 = x1 + x2+x3
For the second child, just do the same
Total money she needs to invest = amount she invest for first child + amount she invest for second child
Can you get the answer?

Answer 4

Tanx Callisto

Answer 5

welcome :)