# investment problem

• Dec 4th 2011, 09:01 AM
terminator
investment problem
Louis and Claire just had a baby girl. They decide to make monthly contributions to a guaranteed investment certificate (GIC) in order to give her \$40,000.00 for her post-secondary education. The interest on the investment is calculated at 3.5% compounded monthly for 18 years
Determine Louis and Claire’s monthly contribution.

N=360
I = 3.5
PV = 40000
PMT = - 249 (monthly contribution)
FV =0
P/Y =12
C/Y = 12

After graduation from high school, their daughter decides to travel for 2 years before going back to school. Louis and Clair decide to keep the \$40,000.00 in the GIC and continue making the same monthly contributions for 2 more years. How much added interest will be earned?
? I've calculated the future value on my calc.& gives me
75 035.58643 ( I suspect this is the amount they get after 18 years

A= 75 035.59( 1 + 0.35/12)exp 12 x2 = ??

Thanks in advance for any help.
• Dec 4th 2011, 10:55 AM
corsica
Re: investment problem
First things first. Could you explain what all those variables stand for? I for one have no clue what a FV or a C/Y is.
• Dec 4th 2011, 12:38 PM
terminator
Re: investment problem
"In mathematics, you don't understand things. You just get used to them." -- Johann von Neumann

P/Y -number of payments/year
C/Y - no. of compounding periods

TI - 83 is the calculator that I've been using
• Dec 4th 2011, 01:03 PM
SpringFan25
Re: investment problem
not everyone is taught annuities on a TI-83 calculator - some of us do them algebraically and dont see notation like that, except on this forum.

Quote:

Louis and Claire just had a baby girl. They decide to make monthly contributions to a guaranteed investment certificate (GIC) in order to give her \$40,000.00 for her post-secondary education. The interest on the investment is calculated at 3.5% compounded monthly for 18 years
Determine Louis and Claire’s monthly contribution.

N=360 18*12 = 216
I = 3.5
PV = 40000 No, required FUTURE accumulation is 40k
PMT = - 249 (monthly contribution) Solve for this and expect a positive number
FV =0 40k
P/Y =12
C/Y = 12

Now for the interesting part, how to calculate the interest added in he last two years if the term is extended by 24 months.

This will be:
The total value of the fund if investments last for 20 years
minus
40 000
minus
the (cash) value of 24 monthly payments (no discounting required or anything like that)

Can you see why? The idea is that the future value must be made up of capital + interest, we are taking "capital" to be the2 years of extra premium and the 40k earned by the original investment.
• Dec 4th 2011, 05:52 PM
Wilmer
Re: investment problem
Quote:

Originally Posted by terminator
I = 3.5

NO; should be .035/12