The parents of three children, ages 1, 3, and 6, wish to set up a trust fund that will pay X to each child three years from now, and Y to each child upon attainment of age 21. They will establish the trust fund with a single investment of Z.
Which of the following is the correct equation of value for Z?
References
Hlynka, Myron. "University of Windsor Old Tests 62-392 Theory of Interest". web2.uwindsor.ca. Retrieved November 23, 2023.
Solution: C
Child 1 needs [math]X v^3+Y v^{21-1}[/math].
Child 2 needs [math]X v^3+Y v^{21-3}[/math].
Child 3 needs [math]X v^3+Y v^{21-6}[/math]
So total amount needed is [math]3 X v^3+Y\left(v^{20}+v^{18}+v^{15}\right)[/math].
References
Hlynka, Myron. "University of Windsor Old Tests 62-392 Theory of Interest". web2.uwindsor.ca. Retrieved November 23, 2023.