Prof. Business wants a 22-year retirement annuity that begins 9 years from today with an equal...

Prof. Business wants a 22-year retirement annuity that begins 9 years from today with an equal annual payment equal to $115,000 today inflated at 2.5% annually over 9 years. Her first retirement annuity payment would occur 9 years from today. She realizes her purchasing power will decrease over time during retirement.

Prof. Business currently has $660,000 in her University retirement account. She expects these savings and any future deposits into her University and any other retirement account will earn 8% compounded annually. Also, she expects to earn 7% annual return after she retires.

Prof. Business now wants to consider retiring two years earlier in 7 years and will deposit her required University contributions each year as in question 4 and will deposit and additional $14,400 at the end of each year for the next 7 years (first deposit totals $35,400). Also, she will require a 24-year retirement annuity.

Answer from #4:

Value of retirement account after investment period

1951366.329

Amount of annual investment

$50,612.24

Questions:

a) How much money will Prof. Business have in her retirement account immediately after her last deposit 7 years from today?

b) What would be the equal annual payment from her 24-year retirement annuity whose first payment occurs exactly 7 years from today?

Please show work and functions on an excel spreadsheet.

Solutions

Expert Solution

currently prof. business have 660000 which will compound annually by 8% => 660000*(1+8%)⁷ => $1131124

also the amount she will invest annually at the end of the year will be => 50612.24+14400 = $65012.24

a) total amount in her retirement account immediately after her last deposit 7 years from today= 1711215

the below attached image shows the calculation of the fv of amount invested by prof. Business.

annual payment of 162527.76 will be made to Prof. Business every year for 24 years after 7 years of deposit

jeff jeffy answered 1 month ago

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