FIN 534 RANK Imagine Your Future /fin534rank.com FIN 534 RANK Imagine Your Future /fin534rank.com | Page 55

he wants Steve to work, not be a \"trust fund baby,\" but he also wants to
ensure that Steve is provided for in his old age.
Until now, the grandfather has been disappointed with Ed, hence has not
given him anything. However, they recently reconciled, and the
grandfather decided to make an equivalent provision for Ed. He will
make the first payment to a trust for Ed today, and he has instructed his
trustee to make 40 additional equal annual payments until Ed turns 65,
when the 41st and final payment will be made. If both trusts earn an
annual return of 8%, how much must the grandfather put into Ed\'s trust
today and each subsequent year to enable him to have the same
retirement nest egg as Steve after the last payment is made on their 65th
birthday?
a. $3,726
b. $3,912
c. $4,107
d. $4,313
e. $4,528
5. John and Daphne are saving for their daughter Ellen\'s college
education. Ellen just turned 10 at (t = 0), and she will be entering college
8 years from now (at t = 8). College tuition and expenses at State U. are
currently $14,500 a year, but they are expected to increase at a rate of
3.5% a year. Ellen should graduate in 4 years--if she takes longer or
wants to go to graduate school, she will be on her own. Tuition and other
costs will be due at the beginning of each school year (at t = 8, 9, 10, and
11).
So far, John and Daphne have accumulated $15,000 in their college
savings account (at t = 0). Their long-run financial plan is to add an