How much should rajani contribute monthly to the global

Reference no: EM133415516

Question: Assume you are a financial adviser. Rajani, one of your clients, approached you for a consultation about her plan to make a savings target of $350,000 for her child's higher education in the United States of America 10 years from now. Rajani has savings of $150,000 and is considering alternative investment options:

Option 1: Invest $150,000 in an asset in the financial market for 10 years. There are two assets of her choice.

Asset A pays a rate of return of 8.5% per year, compounding semi-annually.
Asset B pays a rate of return of 8.45% per year, compounding quarterly.
Option 2: Contribute exactly an equal amount of money to the Global Growth Investment Fund at the beginning of each month for 10 years to accumulate $200,000 at the end of the 10-year period. The fund is offering a rate of return of 7% per year, compounding monthly.

A. Based on the effective annual interest rate (EAR), identify the best alternative out of the two assets given under option 1

B. Briefly discuss the importance of EAR in financial decision-making

C. Calculate Rajani's total wealth at the end of 10 years if she chooses asset B in option 1

D. Based on the information given under option 2, how much should Rajani contribute monthly to the Global Growth Investment Fund to reach her investment target of $200,000 in 10 years?

Reference no: EM133415516

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