Question 2

Jim is going to establish a University Fund for his daughter Jennifer, who is two year's old.He plans to make the first deposit of $10,000 today and make another 5 annual deposits of this amount. After this, annual deposits of $15,000 will be made until Jennifer's 17th birthday. Given the long term nature of the investment, Jim anticipates an 4% pa return. The money is then to be transferred to an account for Jennifer on her 17th birthday and she will then withdraw the money in equal annual amounts for 6 years starting on her 18th birthday. Jade will only be able to earn 2% pa on her money.

(i) How much money will be available on Jennifer's 17th birthday?

(ii) Design a schedule showing the cash inflows and outflows of this fund.How much will Jennifer be able to spend each year?

(Your answers should be accurate to the nearest dollar)