Question

Bilbo Baggins wants to save money to meet three objectives. First, he would like to be able to retire 30 years from now with retirement income of $23,000 per month for 25 years, with the first payment received 30 years and 1 month from now. Second, he would like to purchase a cabin in Rivendell in 15 years at an estimated cost of $499,000. Third, after he passes on at the end of the 25 years of withdrawals, he would like to leave an inheritance of $800,000 to his nephew Frodo. He can afford to save $1,700 per month for the next 15 years.

If he can earn a 9 percent EAR before he retires and a 7 percent EAR after he retires, how much will he have to save each month in Years 16 through 30?

(Please don't link another post, I've repeatedly attempted to solve this problem while looking at another post. I had no luck at all, so I would appreciate an explanation, thank you so much!)

Answer 1