T would like to be assured $10,000 is available in 10 years to replace a roof on his house. What kind of $10,000 policy should T purchase?

Question

T would like to be assured $10,000 is available in 10 years to replace a roof on his house. What kind of $10,000 policy should T purchase?

Answer 1

Poorly worded.  Do you want the present value of an investment that operates on a single fixed principal, growing by compounding at some interest rate over ten years? Or do you want to have an annuity into which regular fixed amounts are deposited monthly, with the amount calculated to grow up to 10K in 10 years. 

 

If this problem gave alternative initial amounts and interest rates, these could be calculated (present value and fixed periodic monthly payment for ordinary annuity).

 

Another objection (from the practical world)...how does Mr. "T" know what the price of re-roofing will be ten years into the future?