Mr. D is a social worker. He lives with his wife in a village in New Territories.

He has an outstanding fixed mortgage payment of $15,000 per month for 5 years.

The interest rate is fixed at 5% p.a. He wishes to advance his mortgage payment

by two years by paying a lump sum.

Mr. and Mrs. D have a 10-year old daughter. They wish to send her daughter to a

UK university for 4-year study in 8 years time. It is expected to cost $250,000

for every 6-month in present value terms.

He intends to make an initial contribution of $800,000. After that, he believes he

can make $3,000 regular contribution for every 6-month (starting at t = 0.5) while

he is paying the mortgage. This contribution is expected to grow with an inflation

rate of 3%. After repayment his mortgage in 3 years time, he believes he believes

he can make an extra contribution of $7,500 per month (or $45,000 for every 6-

month (starting at t = 3.5). Again, this contribution is expected to grow with

inflation rate.

a)Assume there are no extra interest and handling charges, what will be the

amount he needs to repay the bank if he wants to repay all his mortgage by 2

years?

b)Estimate Mr. Ds daughter education expenses at t = 8, 8.5, , and 11.5.

c)Estimate Mr. D regular contributions while he is still payment the mortgage at

t = 0.5, 1, and 3.

d. Estimate Mr. D regular contributions while he has fully paid the mortgage at

t = 3.5, 4, . and 11.5.