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Mrs. W. M. Rooney, a financial analyst at F. Totti Company (FTC), is assigned to measure the costs of health care of FTC and how
Mrs. W. M. Rooney, a financial analyst at F. Totti Company (FTC), is assigned to measure the costs of health care of FTC and how to cover those costs. She assumes that the cost of one year health care for an employee is $3,000 today, this health care cost is increasing at the rate of 6 percent per year for the next 18 year, and each employee can make contribution of lo percent of this cost per year for the next 18 years, and this contribution stops at the end of 18th year. All payments take place at the end of the relevant period. Mrs. Rooney predicts that the employee?s contribution can be invested in a mutual fund that generates a nominal rate of return of 8 percent, annual compounding Mrs. Rooney is thinking of a health care plan that covers the cost of health care for an employee for 4 years, during Years 19 to 22 while the payments made at the end of each year. How much lump sum would the FTC set aside now, in order to supplement an employee?s share health care cost during years 19-22? Please explain? The amount the FTC sets aside will be invested in a mutual fund that generates 8 percent, annual compounding rate
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