You are now 25 years old, and have just started working. Your salary for this year...

You are now 25 years old, and have just started working. Your salary for this year (i.e., the next 12 months) is $60,000 a year (payable at the end of the year). You expect your salary to increase at the (nominal) rate of 3% per year. You want to retire on your 60 birthday (i.e., 35 years from now). During retirement, you will be happy if you can have $75,000 per year. You expect to live until you are 90 years old (i.e., there will be 30 years during your retirement). Right now, you have $5,000 invested in the stock market, which you expect a return of 6% p.a. You will also invest your future savings in the stock market.
1. a) (3 points) How much money do you need to have at the start of your retirement?
2. b) (4 points) If you want to save 10% of your salary every year during your working years to prepare for your retirement, will you achieve your goal? If not, how much will you fall short of your goal?

Note: In answering the above questions, please assume that all savings and payments will occur at the end of the year.

Expert Solution

Formulae

Formulae as above

jeff jeffy answered 2 years ago

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