IA Lump Sum Funds Lump Sum IB Lump Sum Funds Ordinary Level Annuity IC Lump sum
ID: 2781929 • Letter: I
Question
IA Lump Sum Funds Lump Sum
IB Lump Sum Funds Ordinary Level Annuity
IC Lump sum “funds” delayed level annuity.
ID Ordinary Level Annuity “funds” lump sum.
IE Ordinary Level Annuity “funds” delayed level annuity.
IF Delayed Level Annuity “funds” delayed level annuity.
IIA1 Bond Standard
IIA2 Bond Perpetuity
IIB1 Stock Constant Dividend
IIB2 Stock Constant Dividend Growth
IIB3 Stock Supernormal Growth
IIIA Current rate
IIIB YTM
IIIC Capital Gain/Los
IIID Dividend Yield
IIIE Internal Rate of Return (IRR)
IV Alternatives
V Components of Interest (discount) Rates
VI Real vs. Nominal
You are saving for your child's college education. Your child will attend college for 4 years, eighteen years from now. Each year of tuition will cost $50,000. How much must you invest each month, starting next month for 18 years, if your investment account earns 5% APR compounded monthly?
This type of question falls under the category of _______________
Explanation / Answer
The Correct Answer would be:
IE Ordinary Level Annuity “funds” delayed level annuity.
Tuition cost of $50000 per year for 4 years, 18 years from now is a delayed annuity and to match that payment, if you are starting saving from now, then it is an ordinary annuity.
So, here the ordinary level annuity is funding the delayed annuity.