Question
Daniel and David are cousins who were both born on the same day, and both turned 25 today. Their grandfather began putting $3,400 per year
Daniel and David are cousins who were both born on the same day, and both turned 25 today. Their grandfather began putting $3,400 per year into a trust fund for Daniel on his 20th birthday, and he just made a 6th payment into the fund. The grandfather (or his estate's trustee) will make 40 more $3,400 payments until a 46th and final payment is made on Daniel's 65th birthday. The grandfather set things up this way because he wants Daniel to work, not be a "trust fund baby," but he also wants to ensure that Daniel is provided for in his old age.
Until now, the grandfather has been disappointed with David, hence has not given him anything. However, they recently reconciled, and the grandfather decided to make an equivalent provision for David. He will make the first payment to a trust for David today, and he has instructed his trustee to make 40 additional equal annual payments until David turns 65, when the 41st and final payment will be made. If both trusts earn an annual return of 7%, how much must the grandfather put into David's trust today and each subsequent year to enable him to have the same retirement nest egg as Daniel after the last payment is made on their 65th birthday? Assume that all payments are made at the end of the year.
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