Question

In: Finance

By the end of this year you would be 35 years old and you want to...

By the end of this year you would be 35 years old and you want to plan for your retirement. You wish to retire at the age of 65 and you expect to live 20 years after retirement. Upon retirement you wish to have an annual sum of $50,000 to supplement your social security benefits. Therefore, you opened now your retirement account with 7% annual interest rate. At retirement you liquidate your account and use the funds to buy an investment grade bond which makes $50,000 annual coupon payments based on a 6 % coupon rate, throughout your retirement years.

Please calculate the monthly payment in your retirement account in order to be able to achieve the plan mentioned above?

Solutions

Expert Solution

Using financial calculator to calculate the monthly payment to the retirement account

Inputs: N= 30 × 12 = 360 (monthly payment)

I/y= 7% / 12 = 0.5833%

Pv= 0

Fv= 50,000

Pmt= compute

We get, monthly payment as $40.98

Therefore, he needs to pay $40.98 per month to accumulate $50,000 at the time of retirement to purchase an investment grade bond.


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