Question on Forborne Annuities requested by S11186144 PDF

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Question on Forborne Annuities requested by S11186144 Definition of forborne annuities: Forborne annuity: Any annuity whose payment is closed after some time, then these annuity is called forborne annuity. Example 8 (page 102) of Textbook A family establishes a university savings account on the birth of their daughter. They make monthly deposits of $100 every month after her birth continuing up to her 18th birthday (216 deposits in total). It so happens that the daughter does not go to university at age 18. Instead she starts to draw equal monthly payments from the savings account over 4 years starting on her 23rd birthday. If the savings account earns j12=6% p.a. : a) How much money is in the account on her 23rd birthday? b) What is the size of the monthly withdrawal starting on her 23rd birthday?

General guidelines on how to solve: To answer part a: Find the future value of an ordinary annuity for the monthly deposits of $100 every month (216 payments). You should get a lump sum figure which is valued on her 18 th birthday. From there, you need to take this lump sum from her 18th birthday to 23rd birthday using compound interest. To answer part b: Use the answer from part a as the present value of an ordinary annuity. Then find for the periodic monthly payment....