6.02 REVIEW PROBLEMS: PRESENT VALUE OF A SINGLE FUTURE VALUE 1. The parents of a six-year old child plan to invest a significant portion of an inheritance in a trust fund that will provide funds for a college education for the child. The goal is to accumulate $200,000 when the child is 18 years old. Funds can be invested in a account that earns 88 compounded quarterly. Find a) the initial amount that must be invested, and b) the total compound interest earned. (10) 2. The beneficiary on a life insurance policy plans to invest a portion of the proceeds now in order to have a total of $800,000 after 25 years. Funds can be invested in an account that earns 78 compounded semiannually. Find a) the initial amount that must be invested and b) the total compound interest earned. (10) 3. An individual recently cashed in a bank certificate of deposit that was purchased five years ago. The CD earned at a rate of 68 compounded quarterly during the investment term and the final value of the CD was $3,367.14. Find a) the initial purchase price of the CD, and b) the total compound interest earned. (10) 4. The inheritor in an estate plans to invest an amount today in order to have an accumulated future value of $500,000 at the end of 15 years. Funds can be invested in a guaranteed investment contract (GIC) that earns 6 compounded monthly. Find a) the initial amount that must be invested, and b) the total amount of compound interest earned. (10 5. A state government agency plans to issue a series of 15-year zero coupon bonds with a par value of $25,000. The bonds are priced to earn 3.25% compounded annually Find a) the initial price of the bonds, and b) the total compound return to investors. (10) 6. An individual must make a balloon payment of $100,000 on a land contract in 10 years. The individual plans to invest the required amount today in an account that earns 5 compounded quarterly. Using the present value equation, find a) the amounted that must be invested now and b) the total compound interest earned