Question

In: Finance

Charlie wants to retire in 15 years, and he wants to have an annuity of $50,000...

Charlie wants to retire in 15 years, and he wants to have an annuity of $50,000 a year for
20 years after retirement. Charlie wants to receive the fist annuity payment the day he
retires. Using an interest rate of 8%, how much must Charlie invest today in order to have his
retirement annuity

Solutions

Expert Solution

Step-1:Calculation of present value of annuity
Present Value of annuity = Annuity x Present Value of annuity of 1
= $                  50,000 x 10.6036
= $        5,30,179.96
Working:
Present Value of annuity of 1 = ((1-(1+i)^-n)/i)*(1+i) Where,
= ((1-(1+0.08)^-20)/0.08)*(1+0.08) i 8%
=                    10.6036 n 20
Step-2:Calculation of present value of above amount
Present Value of above amount = Above Amount x Present Value of 1
= $        5,30,179.96 x      0.3152
= $        1,67,134.83
Working:
Present Value of 1 = (1+i)^-n Where,
= (1+0.08)^-15 i 8%
=                      0.3152 n 15
Thus, Required investment today is $        1,67,134.83

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

Charlie wants to retire in 15 years, and he wants to have an annuity of $40,000...
Charlie wants to retire in 15 years, and he wants to have an annuity of $40,000 a year for 20 years after retirement. Charlie wants to receive the first annuity payment at the end of the year during his retirement period. Using an interest rate of 5% for both savings and retirement periods, how much must Charlie invest today in order to have his retirement annuity? (Round your answer to the nearest dollar).
Sandeep wants to retire in 15 years and he needs to have $60,000 for a down payment on his retirement home.
Sandeep wants to retire in 15 years and he needs to have $60,000 for a down payment on his retirement home. If he makes quarterly payments into an account paying 7% annual interest compounded quarterly, how much should he deposit each quarter to obtain the desired down payment?
Your father is about to retire, and he wants to buy an annuity that will provide...
Your father is about to retire, and he wants to buy an annuity that will provide him with $78,000 of income a year for 25 years, with the first payment coming immediately. The going rate on such annuities is 5.15%. How much would it cost him to buy the annuity today?
Uncle Bob is about to retire and he wants to buy an annuity that will provide...
Uncle Bob is about to retire and he wants to buy an annuity that will provide him with $8400 of income a year for 30 years with the first payment coming immediately the going rate on such annuities is 15.25% how much would it cost him too buy the annuity today
An individual wants to retire in 25 years. At that time (s)he wants to be able...
An individual wants to retire in 25 years. At that time (s)he wants to be able to withdraw $2500 per month to cover living expenses.  This individual has an expectation that (s)he will live 25 years after the date of retirement. The interest rate is 6% per year. This individual has assumed that: The interest rate is constant over time                                             True                          False The expected time frames are 25 years                                           True                          False There are no additional risks to be considered                            True                          False There is money left over 50...
Required Annuity Payments. Your father is 50 years old and will retire in 10 years. He...
Required Annuity Payments. Your father is 50 years old and will retire in 10 years. He expects to live for 25 years after he retires, until he is 85. He wants a fixed retirement income that has the same purchasing power at the time he retires as $35,000 has today. (The real value of his retirement income will deline annually after he retires). His retirement income will begin the day he retires, 10 years from today, at which time he...
Ryan is 50 years old and will retire in 15 years. He expects to live for...
Ryan is 50 years old and will retire in 15 years. He expects to live for 25 years after he retires, until he is 90. He wants a fixed retirement income that has the same purchasing power at the time he retires as $40,000 has today. (The real value of his retirement income will decline annually after he retires.) His retirement income will begin the day he retires, 15 years from today, at which time he will receive 24 additional...
Ryan is 50 years old and will retire in 15 years. He expects to live for...
Ryan is 50 years old and will retire in 15 years. He expects to live for 25 years after he retires, until he is 90. He wants a fixed retirement income that has the same purchasing power at the time he retires as $40,000 has today. (The real value of his retirement income will decline annually after he retires.) His retirement income will begin the day he retires, 15 years from today, at which time he will receive 24 additional...
A friend wants to retire in 30 years when he is 65. At age 35, he...
A friend wants to retire in 30 years when he is 65. At age 35, he can invest $500/month that earns 6% each year. But he is thinking of waiting 15 years when he is age 50, and then investing $1,500/month to catch up, earning the same 6% per year. He feels that by investing over twice as much for half as many years (15 instead of 30 years) he will have more. A. What is the future value of...
Parker is 50 and wants to retire in 15 years. His family has a history of...
Parker is 50 and wants to retire in 15 years. His family has a history of living well into their 90s. Therefore, he estimates that he will live to age 95. He currently has a salary of $120,000 and expects that he will need about 65% of that amount annually if he were retired. He can earn 9 percent in his portfolio while he is working. However, he expects that he will only earn 7 percent in his portfolio during...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT