Two friends, Alysha and Laura, are planning for their retirement. Both are 20 years old and...

Two friends, Alysha and Laura, are planning for their retirement. Both are 20 years old and plan on retiring in 40 years with $1,000,000 each. Laura plans on making annual deposits beginning in one year (total of 40 deposits) while Alysha plans on waiting and then depositing twice as much as Laura deposits.

If both can earn 7.4 percent per year, how long can Alysha wait before she has to start making her deposits? (Round answer to 2 decimal places, e.g. 125. Do not round your intermediate calculations.)

Expert Solution

First find the annuity amount for Laura

Future Value of annuity = A* ((1+rate)^n-1)/rate

1000000= A*((1+7.4%)^20-1)/7.4%

1000000= A*42.83129503

A= 23347.41

Annuity amount for Alysha= 2*23347.41= $46,694.83

In financial calculator enter

FV=1000000

PMT=-$46,694.83

I/Y=7.4

Solve for N as 13.30 years

Number of years Alysha can wait= 20-13.30 = 6.70 years

jeff jeffy answered 2 years ago

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