FIN 534 RANK Change The World /fin534rank.com FIN 534 RANK Change The World /fin534rank.com | Page 53

b. 0.44%
c. 0.36%
d. 0.30%
e. 0.24%
4. Steve and Ed are cousins who were both born on the same day, and
both turned 25 today. Their grandfather began putting $2,500 per year
into a trust fund for Steve on his 20th birthday, and he just made a 6th
payment into the fund. The grandfather (or his estate\'s trustee) will
make 40 more $2,500 payments until a 46th and final payment is made
on Steve\'s 65th birthday. The grandfather set things up this way because
he wants Steve to work, not be a \"trust fund baby,\" but he also wants to
ensure that Steve is provided for in his old age.
Until now, the grandfather has been disappointed with Ed, hence has not
given him anything. However, they recently reconciled, and the
grandfather decided to make an equivalent provision for Ed. He will
make the first payment to a trust for Ed today, and he has instructed his
trustee to make 40 additional equal annual payments until Ed turns 65,
when the 41st and final payment will be made. If both trusts earn an
annual return of 8%, how much must the grandfather put into Ed\'s trust
today and each subsequent year to enable him to have the same
retirement nest egg as Steve after the last payment is made on their 65th
birthday?
a. $3,726
b. $3,912
c. $4,107