A customer has a young disabled child with multiple sclerosis and wishes to invest enough money to provide $5,000 a month in perpetuity to pay for ongoing medical expenses. Upon the death of the disabled individual, the principal amount will be left to a charity searching for a cure for the disease. Assuming that the principal can be invested at a 6% annual rate of return, the required principal amount is:

Comparison shows that the best investment is 8.95% compounded monthly. (Part C or Number 3 option is best)

Explanation:

General Formula For Future Value:

Where:

FV is the future Value

PV is the present Value

i is the interest rate

n is the compound interest period

k is the Total number of years

Part A:

when i=9% . Using above formula:

n is the quarters in 1 year=4

Part B:

when i=8.90% . Using above formula:

Considering year of 365 days

n is the hours in 1 year=24*365=8760 hr/year

Part C:

when i=8.95% . Using above formula

n is the months in 1 year=12 months

The above comparison shows that the best investment is 8.95% compounded monthly. (Part C or Number 3 option is best)