Question

Suppose Mr. Ali, a manager in a financial firm, has just won a lottery of worth $ 3,000 and he has planned to retire thirty years from today. He expects that he may need $ 50,000 on the marriage of his daughter 20 years from today and $ 10,000 to exchange his old car with the new one 15 years from today. He determines that he needs $15,000 per year once he retires, with the first retirement funds withdrawn one year from the day he retires. He estimates that he will earn 10% per year on the retirement funds and that he will need funds up to and including his 20th birthday after retirement.

a. How much he needs to deposit in an account today so that he has enough funds to meet all his future expenditures?

b. How much he needs to deposit each year in an account, starting one year from today upto his retirement age, so that he may have enough funds to meet all his future requirements?

Answer 1

As mentioned in the question the manager is planning for his retirement along with certain expenses such as daughter's marriage and Exchange of his car. That expenses need to be accounted for and need to be deducted from the accumulated amount. Why that need to be deducted from the accumulated amount as they are interim expenses and will arise prior to retirement and the expectation of $15000/- per year need to be taken care. Hence following is the tabular presentation of yearly investment he need to do and the same is divided into monthly and daily investment amount. Further we have assumed that he will be getting a return of 10% p.a. on his investment. Please refer the following table for answer of both the questions.

With this we get the desired results of returns.