You Deposit a Lump Sum $P$ In a Trust Fund on the Day Your Child Is

question 42

Multiple Choice

You deposit a lump sum $P$ in a trust fund on the day your child is born. The fund earns 6.5% interest compounded continuously. Find the amount $P$ that will yield the given balance $A$ on your child's 25th birthday. $A = \$ 100,000$

• A) \(P \approx \$ 10,691.17\)
• B) \(P \approx \$ 9,691.17\)
• C) \(P \approx \$ 14,691.17\)
• D) \(P \approx \$ 11,691.17\)
• E) \(P \approx \$ 19,691.17\)

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Definitions:

Deferred Annuity

An insurance product that provides for the accumulation of capital on a tax-deferred basis, with payouts commencing at a future date, typically used as a retirement planning tool.

Ordinary Annuity

A series of equal payments made at regular intervals, with the typical assumption that each payment occurs at the end of a period.

Deferred Annuity

An insurance product that provides future payments to the holder, typically starting at retirement, after an initial investment period.

Ordinary Annuity

A succession of equivalent remittances occurring at regular intervals for a certain stretch of time.