Question

1. Suppose that you are just about to retire, and you just turned 65. Your personal and family health history is such that you forecast that you will live to age 88.

In retirement, you would like to have purchasing power of $60,000 (i.e., real dollars) before taxes. Suppose, for our example, that you anticipate receiving $20,000 in inflation-adjusted Social Security payments each year. Hence, your portfolio will need to provide $40,000 in real dollars each year. Assume that each payment is at the start of each year in retirement, where the first payment is immediately. How much do you need to have in your retirement account at retirement (in real dollars)? Assume that your portfolio earns a real annual rate of return of 5.06%, compounded annually during retirement.

Do not round at intermediate steps in your calculation. Round your answer to the nearest dollar. Do not type the $ symbol.

2. Suppose that you are considering a conventional, fixed-rate 30-year mortgage loan for $100,000. The lender quotes an APR of 5.56%, compounded monthly; mortgage payments would be monthly, beginning one month after the closing on your home purchase.

After 10 years of payments, what is the balance outstanding on your loan?

Do not round at intermediate steps in your calculation. Round your answer to the nearest penny. Do not type the $ symbol.

Answer 1

1. Here PMT=40000, Rate=5.06%, nper= (88-65)=23

So, you need to have $563651.82 in your account.

2. Monthly rate= 5.56%/12=0.46%, nper=30*12=360, PV=$100000

Below is the amortization schedule upto 10 year or 120 months:

So, After 10 year your loan amount due is 82,681.23