Question

A Asset Valuation = Price B Wealth Accumulation C Funding – Lump sum funds lump sum D Funding – Lump sum funds ordinary level annuity E Funding – Lump sum funds delayed level annuity F Funding – Ordinary level annuity funds lump sum G Funding – Ordinary level annuity funds delayed level annuity H Choosing Among Alternatives Classify the problem as one of the above types. Choose Only One You plan to retire 8 years from today. Your retirement will last for 222 months. You need $3,675 each month of your retirement. How much do you have to invest today in an account that earns 3.76% APR (compounded monthly) to exactly pay for your retirement?

Answer 1

Funding – Lump sum funds ordinary level annuity

Calculation of amount required at the time of retirement:

Nper = 222
PMT = $3,675
Rate = 3.76% / 12
FV = 0

Amount required at the time of retirement can be calculated by using the following excel formula:
=PV(rate,nper,pmt,fv)
=PV(3.76%/12,222,-3675,0)
= $587,236.30

Calculation of amount you have to invest today:

Nper = 8 * 12 = 96
Rate = 3.76% / 12
FV = $587,236.30
PMT = 0

The amount you have to invest today can be calculated by using the following excel formula:
=PV(rate,nper,pmt,fv)
=PV(3.76%/12,96,0,-587236.30)
= $434,891.93

The amount you have to invest today = $434,891.93