A mother is thinking about funding her daughter’s medical education in 6 years when she is expected to enrol at UWI, St. Augustine. She opens a special savings account, where she can receive a lump sum in 6 years.  If she is desirous of receiving $50,000 in 6 years when her daughter is matriculating, how much would you advise her to deposit in the savings account monthly if annual interest rate is 7%?  Show all working.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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  • A mother is thinking about funding her daughter’s medical education in 6 years when she is expected to enrol at UWI, St. Augustine. She opens a special savings account, where she can receive a lump sum in 6 years.  If she is desirous of receiving $50,000 in 6 years when her daughter is matriculating, how much would you advise her to deposit in the savings account monthly if annual interest rate is 7%?  Show all working.
Expert Solution
Step 1

A concept through which it is studied that the current worth of money is higher than its future worth is term as the TVM (time value of money).

Step 2

Computation of the monthly savings amount:

Finance homework question answer, step 2, image 1

It is computed in the following manner:

Finance homework question answer, step 2, image 2

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