How much do you need when you retire to provide a $2,500 monthly check that will...

How much do you need when you retire to provide a $2,500 monthly check that will last for 25 years? Assume that you're savings earn .5% monthly and you receive the check each month.

a) 361,526.14

b) 388,017.16

c) 402,766.67

d) 414,008.24

Solutions

Expert Solution

Given that,

PMT = $2500 will be required after retirement every month for next t = 25 years

interest rate earned r = 0.5% monthly

So, amount needed at retirement can be calculated using PV formula of Annuity

PV = PMT*(1 - (1+r)^-(t*n))/r = 2500*(1 - (1+0.005)^(-25*12))/0.005 = $388017.16

Option b is correct.

jeff jeffy answered 2 years ago

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