Question 1: You are considering investing in a scholarship fund for your daughter. The fund operates in the following way: Starting in one months time you would make regular monthly deposits of $50 for a period of eight years into a scholarship fund. Immediately after your final deposit the fund would pay $10,000 to your daughter to help her with expenses when she commences university study.

a) Illustrate this scenario as a fully labelled time line diagram.

To be able to compare this fund with other possible investments, you need to know the effective interest rate, j12, that this fund returns. b) Derive and present the equation of equivalence that is appropriate for this scenario. Do NOT seek to simplify the expression, but rather leave $10,000 as the value of the left hand side (LHS). [Hint: This is a Price is Right problem but with a FV.]

c) Using an estimate of i=1%, determine the value of the right hand side (RHS) of the equation of equivalence. Enter this value to 2 decimal places as an answer.

d) Present you next three estimates of i and the corresponding value of the right hand side of the equation of equivalence. Ensure that for each of these three steps you explain why you increased or decreased the value of i.