Question
Problem 2. Suppose that parents make family planning to finance their child's studies and buy a car. The expected costs for studies are EUR 10
Problem 2. Suppose that parents make family planning to finance their child's studies and buy a car. The expected costs for studies are EUR 10 000 per year that must be paid at the end of the 9th, 10th, 11th and 12th year from today. They also estimate that in 20 years from now (i.e. t 20) they will need to replace their large family car with a smaller one that will better serve them and estimate the cost to be EUR 15 000. For this reason they are determined to save a sum at the end of each year for the next 6 years in order to collect the necessary amount for both their child's studies and the car purchase. Note that the amount that they will save at the end of each year in the first three years will double in the next three years, i.e. at the end of the 4th, 5th and 6th years, respectively. It is asked to calculate the capital that they will have to save each year, assuming the annual interest rate is 5% and will remain constant for the next 20 years.
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