You want to be able to spend the current equivalent of $57,168 per year during your retirement that will start in 17 years

You want to be able to spend the current equivalent of $57,168 per year during your retirement that will start in 17 years, and go for 22 years.

You expect inflation to be 4% per year during your retirement.

How much would you have to invest in nominal terms in years 1 to 7, to fully pay for your retirement if your investments earn 8.44% APR (annual compounding)

Solutions

Expert Solution

Todays equivalent after 17 years at 4% inflation = 57168 * (1+0.04)^17

= 111,357.575525

Retirement will last for 22 years

Present Value of Cash Flow required after 17 years =

where r is the rate of Return for compounding period = 8.44%

n is the no of compounding period = 22 years

= 11,097,476.58494

Now, retirement will start in 17 years but we can deposit only for 7 years, so

Present value required after 7 years (10 years before the retirement)

= 11,097,476.58494 / (1+0.844)^10

= 4935477.18036

Now,

Future Value of Annuity = 4935477.18036

=4935477.18036

r =0.0844

n = 7

= 4935477.18036

Periodic Paymnet * 9.04385593246 = 4935477.18036

Periodic Paymnet = 545729.29

jeff jeffy answered 2 years ago

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