Question

starting six months after her grandson robin's birth Mrs devine made deposit of $250 into a trust fund every 6 months until Robin was 18 years old. the trust fund provides for equal withdrawals at the end of each 6 months for 4 years beginning 6 months after the last deposit. if interest is 5.17% compounded semi annually how much will Robin receive every 6 months?

Answer 1

The question is solved in two parts. First, the amount of deposits accumulated in the trust fund is calculated.

Information provided:

Semi-annual deposit= $250

Time= 18 years*2= 36 semi-annual periods

Interest rate= 5.17%/2= 2.5850% per semi-annual period

The future value of the semi-annual deposits is calculated.

Enter the below in a financial calculator to compute the future value:

PMT= 250

N= 36

I/Y= 2.5850

Press the CPT key and FV to compute the future value.

The value obtained is 14,566.92.

The value of the trust fund is $14,566.92.

The amount of semi-annual withdrawal is calculated by entering the below in a financial calculator:

N= 4 years*2= 8

I/Y= 2.5850

PV= -14,566.92

Press the CPT key and PMT to compute the amount of semi-annual withdrawal.

The value obtained is 2,038.98.

Therefore, Robin will receive $2,038.98 every 6 months.