Question

1.

A wealthy relative has set up a trust fund for you. In five years, you will receive the first of 300

monthly payments of $2500. You would like to have the money now to start a business. You

visit Mr. Hammerhead, the loans officer, and he agrees to lend you money if you sign over all of

your trust payments to the bank. How much would you receive if the bank charges interest at

6% compounded monthly?

Answer 1

Trust Fund
Monthly Payment	$2500
Total Installments	300
Total Payments $(2,500 × 300)	750,000
Total Months (12 × 5)	60
Payment per Month $(750,000 ÷ 60)	12,500
Interest Rate (compounded monthly) (6% ÷ 12)	0.5%
Present Value =PV(0.5%,60,-12,500)	$646,569.51
∴ I would receive $646,569.51 from the bank
Note: Present Value is solved in Excel

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