Question 2

John is going to establish a University Fund for his daughter Mary, who has just been born.He plans to make the first deposit of $20,000 today and then annual deposits of $5,000 will be made until Mary's 17th birthday. Given the long term nature of the investment, John anticipates a 5% pa return. The money is transferred to an account for Mary on her 17th birthday and she will then withdraw the money in equal annual amounts for 5 years starting on her 18th birthday. Mary will only be able to earn 3% pa on her money.

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

(ii) How much will Mary be able to spend each year?

(Your answers should be accurate to the nearest dollar)

Please show all the working