Mr. Malik Khalid has approached you for some saving plans for his future needs. Mr.

Khalid has age

of 30 years and doing job in Shall Pakistan. Mr. Khalid has only one son Aryan, which has recently

joined school in play group. Mr. Khalid wants to get following plans:

1. The educational plan for medical education (MBBS) education of his child

PV = 4750,000, I = 7.5% (0.07), n= 16

Formula: FV = PV [1+i] n

FV = 4750,000 [1+ 0.075]16

FV= 4750,000 [1.075]16

FV = 4750, 000[3.1807]

FV = 15108325

Now putting the value of FV in annuity.

Assuming i = 12.5% (0.125)

Formula: FV =R [(1+i) n-1/i]

15108325=R [(1+0.125)16 – 1 / 0.125]

15108325=R [5.5832 /0.125]

15108325=R [44.6656]

15108325/44.6656= R

R= 338254. 1598
Firstly, we started with educational plan. Mr. Khalid’s son is in playgroup. He is four years

old. He will be 18 years old when he starts his MBBS. We supposed 4750,000 for his MBBS

Fee. First of all, we will evaluate the present value of this scenario. We are evaluating this

value because inflation rate effects this. Inflation rate that we have supposed is, 7.5%. Now

we have found the present value and we also found inflation rate. We supposed 12.5% of

interest rate, now Interest rate is already known. After 14 years we will find the present

value of this future value. We have found the future value which is 15108325. Now we will

find the value of FV in annuity. We will put value 15108325 in annuity. Now we will put the

interest that the company will allow us and that is 12.5%. We have supposed value of N to

be 16. Now we have to find the value of R. For that we will apply the annuity formula to find

R. The value of R that we have found is, 338254. 1598.

After all this process, we have found the following conclusion,

The value that we annually pay after paying the interest is 338254. 1598.
 2. Saving plan for marriage of his son

Now his son in playgroup so his estimated age is 4 years. Mr. Malik Khalid wants his an insurance for

his son wedding which he wants when his son will become 28 years old so estimated n is 24 years.

Now estimated expense on a wedding is 1370,000 now because of inflation rate we will calculate

future value of this amount by assuming inflation rate 11.5%.

n =24,

I = 11.5% (0.115)

PV = 1370,000

FV =?

Formula: FV =PV (1+i) n

FV= 1370,000 (1.115) 24

FV= 1370,000 (13.6331)

FV= 18677347

Now Consider this FV as FVA

Assuming I = 11.5%

Formula: FVA =R [(1+i) n-1/i]

18677347 = R [(1.115)24-1/0.115]

18677347 = R [(12.6331)/0.115]

18677347 = R [109.8530]

18677347/109.8530 = R

R = 170021.27
For marriage plan, we will use the above method.

Mr. Malik Khalid pay 170021.27 every year up to 24 year in order to gain 18677347 for his son’s

wedding with an interest rate of 11.5%. We supposed 1370,000 for his marriage expenses. First

of all, we will evaluate the present value of this scenario. We are evaluating this value

because inflation rate effects this. Inflation rate that we have supposed is, 11.5%. Now we

have found the present value and we also found inflation rate. We supposed 11.5% of

interest rate, now Interest rate is already known. After 24 years we will find the present

value of this future value. We have found the future value which is 18677347. Now we will

find the value of FV in annuity. We will put value 18677347 in annuity. Now we will put the

interest that the company will allow us and that is 11.5%. We have supposed value of N to

be 24. Now we have to find the value of R. For that we will apply the annuity formula to find

R. The value of R that we have found is, 170021.27.

After all this process, we have found the following conclusion,

The value that we annually pay after paying the interest is 170021.27.
3. A retirement plan after his retirement at the age of 60.

Mr. Malik Khalid

n= 20

PV= 3350,000

I = 9% (0.09)

R =?

Formula:

PVA= R [1-1/ (1+i) n]/0.09

3350,000 = R [1-1/ (1+0.09)20]/0.09

3350,000 = R [1-1/ (1.09)20]/0.09

3350,000 = R [1-1/ (5.6044)]/0.09

3350,000 = R[0.8215]/0.09

3350,000 = R (9.1277)

3350,000 / 9.1277= R

R = 367014.6915

In retirement plan we will use the present value annuity. The maximum life of Mr. Khalid that we

have supposed is 80 years. The present value is assumed by us and that is 3350,000. The atlas

insurance company has given the present value 3350,000. Although we can use monthly basis

for insurance but we have used annual value. We supposed 367014.6915 for his Retirement

plan. First of all, we will evaluate the future value of this scenario. Now we have found
the future value. We supposed 9% of interest rate, now Interest rate is already known.

After 20 years we will find the future value of this present value. We have found the

future value which is 367014.6915. For this purpose we will find the value of PV in

annuity. We will put value 3350,000 in annuity. Now we will put the interest that the

company will allow us and that is 9%. We have supposed value of N to be 20. Now we

have to find the value of R. For that we will apply the annuity formula to find R. The

value of R that we have found is, 367014.6915.

Note: The reason for using 20 for value of N is because Mr. Khalid will retire in 60 years.

He started saving 30 years after starting his professional career. The future that we have

found after above process is 367104.6915. He will receive this value after every year.