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Math Help - investment problem

  1. #1
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    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.
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  2. #2
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    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.
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  3. #3
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    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
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  4. #4
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    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.

    My comments on your first post in red

    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.
    Last edited by SpringFan25; December 4th 2011 at 01:33 PM.
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  5. #5
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    Re: investment problem

    Quote Originally Posted by terminator View Post
    I = 3.5
    NO; should be .035/12
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