Question

Question 6 An educational saving account is created. The account is set up such that the beneficiary will receive all money in the account (principal as well as accrued interest) after 12 years from the present. Payments into this account are made by depositing $275 to this account every month. Because this saving plan is registered, a matching grant is given by the Government amounting to 25% of the money deposited (with the exception of the last $275 paid at the end of year 12 which is not matched). The grant amount is deposited every month on top of the $275. However, there is one month lag between them. That is, the first grant payment is deposited at the end of the second month; one month after the first payment. The last amount deposited is excluded from the grant. The first payment to this account will be made at the end of the first month and the last is by the end of year 12. If the expected monthly rate of return (interest rate i) for this educational saving account is 0.14%, calculate the amount which is expected to be cashed from this account by the beneficiary after 12 years

Answer 1