ElectricPavlov:
Good effort ElectrcPavlov but no cigar!!. Read the following carefully and try to undersrand it.
1) Since each child is to receive the same amount when they turn 21, then will have to find the PV of $1 in each case:
PV=FV [1 + R ]^-N
In the case of the 17-year old we have:
PV=1[1 + .08/4 ]^-(4*4)-He/she has 4 more years or 16 quartes to reach 21.
PV=.728445813714
In the case of the 12-year old we have:
PV=1 [1 + .08/4 ]^-(9*4)--He/she has 9 more years or 36 qurters to reach 21
PV=.490223150352
Now, will add these two PV's together and will get:
=.728445813714 + .490223150352
=1.21866896406. Next, will divide $10,000 by this figure, which is what each child will receive:
$10,0000 / 1.21866896406
=$8,205.67--Which is the the amount that each child will receive when they turn 21.
2) Check:
The $10,000 will grow for 4 more years until the 17-year old turns 21. At the time, it will be worth:
=13,727.86. Then will subtract his/her inheritance of $8,205.67 from this amount and the balance is:
$13,727.86 - $8,205.67=$5,522.19.
This balance of $5,522.19 will continue to grow @ 8% comp. quarterly for another 5 years or 20 quarters until the 12-year old, who is now 16, turns 21.
FV=$5,522.19[1.02]^20
=$8,205.67. And that is what the 12-year old will receive at 21, which is the same amount that the other child received. And that is the end of this saga!!!!.