this complicated question that I am not fully sure of

[Anonymous]

Hi. I have this complicated question that I am not fully sure of. The information goes as follows: Bob opened up a savings account 18 years ago to sae for his son when he reached 18. He wanted there to be $150000. TO achieve this, Bob made equal deposits of $400 at the end of each month for 12 years, then the accumulated balance was left to grow the remaining 6 years at 7%pa. I have to determine the EAR on the saving account over the first 12 years- and should assume monthly compounding for 12 years and annual for 6. Is the way to go about this question that I should discount the total by 6 years, and then discount it to the start using power of 144?

There is a follow up to this question. On his 18th birthday, the son decides to go to university. His degree requires 4 years, and costs $12000 per semester. The payments are made semiannually at the beginning of each semester ( the first payment is now). The account will average 8% annually (APR quoted by bank). On his graduating day, the son buys a car with the remaining balance on the account. What is the cost of the car? To go about this question, do I compound all payments or discount them all and subtract from $150000?

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