CASE 11a Financial Planning for a Secure Future Elijah and his wife, Jada, had their first child on Elijah's 30th birthday. They decided that it was time to meet their financial advisor, Cheng, and request that he create a sound financial plan for their future. Cheng commenced his analysis by understanding their current situation. Through a few questions, he gathered the following information: Elijah had a stable job as a college professor and had plans to retire at the age of 67. He would like to receive a pension amount of $42,000 every year when he retires. Both of them would also like to create a fund that would support their child through his university education. Recently, Elijah received a lump sum amount of $50,000 from the will of a wealthy uncle who had recently died. At the end of the discussion, Elijah also added that he had a vision of donating some money to his college when he retires. His hope is that the college would create an endowment fund that would provide a suitable scholarship for the college's business students. With this information, Cheng created the following financial plan for Elijah and Jada: 1. Make month-end deposits into an RESP starting at $50 and increase the deposits by 1.25% every month for 14 years. 17 years from now, their son will be able to withdraw money at the beginning of every year from the RESP for his university education and increase his withdrawals by 2% every year (to cover for any inflation in the economy) for five years. During the first 17 years, their money will be growing at 9% compounded monthly, and thereafter, they will move the RESP to a fund that earns 10% compounded annually for the next five years. 2. Save the lump sum amount of $50,000 in an RRSP at 6% compounded quarterly. When Elijah is 67-years-old, withdraw one-fourth of the accumulated amount and donate it to his college to create the endowment fund. 3. Convert the balance amount in the RRSP to an annuity paying $42,000 annually. Elijah and Jada were excited that they had a financial plan in place for their future. However, they needed a few clarifications and sent Cheng an email with their questions. Assist Cheng in providing Elijah with answers to the following questions: a. What would be their son's first withdrawal amount for his five-year university education? b. How long would they receive their pension amount? c. What would be the scholarship that students receive at the beginning of every six months in perpetuity if the college creates an endowment fund on Elijah's 67th birthday, and the fund earns 8% compounded quarterly?