(b) As an added benefit to staff, Insignia intends to start a Trust Fund to assist the children of its employees with university tuition via scholarships. The intention of the company is to assist 4 different students annually with a $10,000 grant each. The grant is expected to be increased by 5% annually and provide scholarships indefinitely. Required: i. Assuming this fund will earn 10% interest per annum, calculate the value of the fund today. ii. Insignia decides to fund this amount (calculated in (i)) via monthly deposits over the next 12 months in an enhanced savings account, after which the scholarships will begin. Assuming a return of 12%, compounded monthly, how much would Insignia need to deposit monthly over the next year, to achieve this goal? iii. Compute the effective annual rate on this enhanced savings account.

(b) As an added benefit to staff, Insignia intends to start a Trust Fund to assist the children of its employees with university tuition via scholarships. The intention of the company is to assist 4 different students annually with a $10,000 grant each. The grant is expected to be increased by 5% annually and provide scholarships indefinitely. Required: i. Assuming this fund will earn 10% interest per annum, calculate the value of the fund today. ii. Insignia decides to fund this amount (calculated in (i)) via monthly deposits over the next 12 months in an enhanced savings account, after which the scholarships will begin. Assuming a return of 12%, compounded monthly, how much would Insignia need to deposit monthly over the next year, to achieve this goal? iii. Compute the effective annual rate on this enhanced savings account.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

ChapterM: Time Value Of Money Module

Section: Chapter Questions

Problem 17P: Comprehensive The following are three independent situations: 1. K. Herrmann has decided to set up a...

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Comprehensive The following are three independent situations: 1. K. Herrmann has decided to set up a scholarship fund for students. She is willing to deposit 5,000 in a trust fund at the end of each year for 10 years. She wants the trust fund to then pay annual scholarships at the end of each year for 30 years. 2. Charles Jordy is planning to save for his retirement. He has decided that he can save 3,000 at the end of each year for the next 10 years, 5,000 at the end of each year for Years 11 through 20, and 10,000 at the end of each year for Years 21 through 30. 3. Patricia Karpas has 200,000 in savings on the day she retires. She intends to spend 2,000 per month traveling around the world for the next 2 years, during which time her savings will earn 18%, compounded monthly. For the next 5 years, she intends to spend 6,000 every 6 months, during which time her savings will earn 12%, compounded semiannually. For the rest of her life expectancy of 15 years, she wants an annuity to cover her living costs. During this period, her savings will earn 10% compounded annually. Assume that all payments occur at the end of each period. Required: 1. In Situation 1, how much will the annual scholarships be if the fund can earn 6%? How much at 10%? 2. In Situation 2, (a) How much will Charles have at the end of 30 years if his savings can earn 10%? How much at 6%? (b) If Charles expects to live for 20 years in retirement, how much can he withdraw from his savings at the end of each year if his savings earn 10%? How much at 6%? (c) How much would Charles need to invest today to have the same amount available at the time he retires as calculated in Situation 2(a) at 10%? How much at 6%? 3. In Situation 3, how much will Patricias annuity be?
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