Paul 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 (i.e. pay at Year 3). Paul and his wife, Pauline have a 10-year old daughter, Polly. 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. Paul 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 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.

Estimate Pauls daughter education expenses at t = 8, 8.5, , and 11.5. Estimate Pauls regular contributions while he is still payment the mortgage at t = 0.5, 1, and 3.