a) Ali is planning for his wedding with his fiancé Aliah. They believe they need RM30,000 for the ceremony to be held exactly three years from today. Aliah is planning to start depositing RM300 per month for the event beginning next month in a unit trust that would provide her 5% return per year on average. If Ali were to invest in another unit trust investment that will provide him 7% return per annum, how much should he invest every month beginning today to ensure that their savings will be enough in three years' time? b) Faris and Faiz are twins and both turned 25 today. Their grandfather, a successful businessman began putting RM2,500 per year into a trust fund for Faris on his 20th birthday, and he just made a óth payment into the fund. The grandfather (or his estate's trustee) will make 40 more RM2,500 payments until a 46th and final payment is made on Faris's 65th birthday. Until now, the grandfather has been disappointed with Faiz, hence has not given him anything. However, they recently reconciled, and the grandfather decided to make an equivalent provision for Faiz. He will make the first payment to a trust for Faiz today, and he has instructed his trustee to make 40 additional equal annual payments until Faiz turns 65, when the 41st and final payment will be made. If both trusts earn an annual return of 8%, how much must the grandfather put into Faiz's trust today and each subsequent year to enable him to have the same retirement nest egg as Faris after the last payment is made on their 65th birthday?
a) Ali is planning for his wedding with his fiancé Aliah. They believe they need RM30,000 for the ceremony to be held exactly three years from today. Aliah is planning to start depositing RM300 per month for the event beginning next month in a unit trust that would provide her 5% return per year on average. If Ali were to invest in another unit trust investment that will provide him 7% return per annum, how much should he invest every month beginning today to ensure that their savings will be enough in three years' time? b) Faris and Faiz are twins and both turned 25 today. Their grandfather, a successful businessman began putting RM2,500 per year into a trust fund for Faris on his 20th birthday, and he just made a óth payment into the fund. The grandfather (or his estate's trustee) will make 40 more RM2,500 payments until a 46th and final payment is made on Faris's 65th birthday. Until now, the grandfather has been disappointed with Faiz, hence has not given him anything. However, they recently reconciled, and the grandfather decided to make an equivalent provision for Faiz. He will make the first payment to a trust for Faiz today, and he has instructed his trustee to make 40 additional equal annual payments until Faiz turns 65, when the 41st and final payment will be made. If both trusts earn an annual return of 8%, how much must the grandfather put into Faiz's trust today and each subsequent year to enable him to have the same retirement nest egg as Faris after the last payment is made on their 65th birthday?
Chapter5: The Time Value Of Money
Section: Chapter Questions
Problem 39P
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Concept explainers
Debenture Valuation
A debenture is a private and long-term debt instrument issued by financial, non-financial institutions, governments, or corporations. A debenture is classified as a type of bond, where the instrument carries a fixed rate of interest, commonly known as the ‘coupon rate.’ Debentures are documented in an indenture, clearly specifying the type of debenture, the rate and method of interest computation, and maturity date.
Note Valuation
It is the process to determine the value or worth of an asset, liability, debt of the company. It can be determined by many processes or techniques. Many factors can impact the valuation of an asset, liability, or the company, like:
Question
b) Assume a 10-year, $1,000 par value bond with a 10 percent annual coupon if its required
i) What would be the value of the bond described in part b if, just after it had been issued, the expected inflation rate rose by 3 percentage points? Would we now have a discount or a premium bond?
ii) What would happen to the bonds' value if inflation fell, by 3 %? Would we now have a premium or a discount bond?
Transcribed Image Text:a) Ali is planning for his wedding with his fiancé Aliah. They believe they need RM30,000 for
the ceremony to be held exactly three years from today. Aliah is planning to start depositing
RM300 per month for the event beginning next month in a unit trust that would provide her 5%
return per year on average. If Ali were to invest in another unit trust investment that will provide
him 7% return per annum, how much should he invest every month beginning today to ensure
that their savings will be enough in three years' time?
b) Faris and Faiz are twins and both turned 25 today. Their grandfather, a successful
businessman began putting RM2,500 per year into a trust fund for Faris on his 20th birthday, and
he just made a óth payment into the fund. The grandfather (or his estate's trustee) will make 40
more RM2,500 payments until a 46th and final payment is made on Faris's 65th birthday.
Until now, the grandfather has been disappointed with Faiz, hence has not given him anything.
However, they recently reconciled, and the grandfather decided to make an equivalent provision
for Faiz. He will make the first payment to a trust for Faiz today, and he has instructed his
trustee to make 40 additional equal annual payments until Faiz turns 65, when the 41st and final
payment will be made. If both trusts earn an annual return of 8%, how much must the
grandfather put into Faiz's trust today and each subsequent year to enable him to have the same
retirement nest egg as Faris after the last payment is made on their 65th birthday?
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