# solution

Jack plans to pay off an instalment loan with payments of \$1,000 every quarter in the first year and \$2,000 every quarter in the second and third years. All the payments will be withdrawn from a return- guarantee investment account set up solely for the purpose. The account will generate an interest of 3% per quarter. The first loan repayment will be made one quarter from now.

(a) Compute the minimum size of the lump-sum (single) payment that Jack will need to deposit into the account today in order to meet all the repayments in the next three years.

(b) HowmuchmorewillJackneedtodepositintotheaccounttodayifhewouldliketohave\$5,000 left in the account right after the last payment was made?

(c) Continued with part (a). If Jackâ€™s parents help Jack out in his finance by making all the payments in Year 3 for Jack, how much less will Jack need to deposit into the account today?

(d) If Jackâ€™s parents make the payments for him for Year 2 (instead of Year 3), how much more balance will Jack find in the investment account at the end of Year 3?

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