In: Finance
Austin Miller wishes to have $200,000 in a retirement fund 25 years from now. He can create the retirement fund by making a single lump-sum deposit today. Use next table to solve the following problems.
$
$
$
$
$
PVA Factor method
a | PV of annuity = Annuity*(1-1/(1+rate)^number of terms)/rate | |
PVA factor= (1-1/(1+rate)^number of terms)/rate | ||
PVA Factor | 7.606079506 | |
Maximum withdrawal | 26294.76 | |
b | PV of annuity = Annuity*(1-1/(1+rate)^number of terms)/rate | |
PVA factor= (1-1/(1+rate)^number of terms)/rate | ||
PVA Factor | 7.606079506 | |
Amount of deposit required | 418334.37 | |
c | Difference in final amount | 218334.37 |
Future Value of annuity = A* ((1+rate)^n-1)/rate | ||
FVA factor | 98.34705943 | |
Amount of deposits required | 2220.039665 |
WORKINGS
Financial calculator method
1: Using financial calculator
Input: PV = 200000, N = 15, I/Y = 10. Solve for PMT as 26294.76
2: Using financial calculator
Input: PMt = 55000, N = 15, I/Y = 10. Solve for PV as 418334.37
3:
Difference in final amount |
218334.37 |
Using financial calculator
Input FV = 218334.37, N= 25, I/Y = 10 Solve for PMT = 2,220.04