Question

 

1. You are investigating an investment opportunity. The security requires you to make quarterly payments of $100 each (1^st payment is 3 months from today), over the next 10 years. It offers a nominal annual return of 6% with quarterly compounding. What is the future value of this security at the end of its life. (including all payments and all interest.)

2. You hope to retire in 30 years, when you do, you would like to have the purchasing power of $100,000 today, during each year of retirement. Your cash is needed at the beginning of each year of retirement. Inflation is expected to be 3% per year from now until the end of your retirement. Your retirement will last 25 years, you expect your 401k to earn 5% per year during your retirement years. How much money do you need at the beginning of your retirement years, to “just meet” your retirement needs (i.e. what is the size of the needed nest egg)?

Answer 1

	Year	Payment	FV @ 6%/4 =.015; (1+.015)^(40-n)	Future Value
	1	$100.00	1.787210255	$178.72
	2	$100.00	1.760798281	$176.08
	3	$100.00	1.734776631	$173.48
	4	$100.00	1.709139538	$170.91
	5	$100.00	1.683881318	$168.39
	6	$100.00	1.658996373	$165.90
	7	$100.00	1.634479185	$163.45
	8	$100.00	1.61032432	$161.03
	9	$100.00	1.586526424	$158.65
	10	$100.00	1.56308022	$156.31
	11	$100.00	1.539980513	$154.00
	12	$100.00	1.51722218	$151.72
	13	$100.00	1.494800177	$149.48
	14	$100.00	1.472709534	$147.27
	15	$100.00	1.450945354	$145.09
	16	$100.00	1.429502812	$142.95
	17	$100.00	1.408377155	$140.84
	18	$100.00	1.387563699	$138.76
	19	$100.00	1.367057832	$136.71
	20	$100.00	1.346855007	$134.69
	21	$100.00	1.326950745	$132.70
	22	$100.00	1.307340636	$130.73
	23	$100.00	1.288020331	$128.80
	24	$100.00	1.268985548	$126.90
	25	$100.00	1.250232067	$125.02
	26	$100.00	1.231755731	$123.18
	27	$100.00	1.213552444	$121.36
	28	$100.00	1.195618171	$119.56
	29	$100.00	1.177948937	$117.79
	30	$100.00	1.160540825	$116.05
	31	$100.00	1.143389975	$114.34
	32	$100.00	1.126492587	$112.65
	33	$100.00	1.109844913	$110.98
	34	$100.00	1.093443264	$109.34
	35	$100.00	1.077284004	$107.73
	36	$100.00	1.061363551	$106.14
	37	$100.00	1.045678375	$104.57
	38	$100.00	1.030225	$103.02
	39	$100.00	1.015	$101.50
	40	$100.00	1	$100.00
			Total	$5,426.79
Using Calculator
PMT	$100.00
Rate = 6%/4	1.50%
Period = 10 x 4	40
Future value = FV(1.50%,40,-100)	$5,426.79