Howard wishes to establish a university fund for his daughter who is currently 7 years old.

Required:

a. If his daughter will need a monthly income of $700, how much does he need to be in place at the start of his university life (i.e. start of first-year) so that the $700 per month is achievable? Assuming that the interest over the three years while his daughter is at university is 6%p.a. compounded monthly and she is paid the $700 at the start of the month for this present value annuity (4 marks)

b. Using your answer from part a, how much does Howard need to invest now as a lump sum (present value) for the next 11 years at 5%pa (compounded annually) so that there are sufficient funds to achieve the amount from part a. (4 marks)