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 $27,000 per month for 15 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 $728,000. Third, after he passes on at the end of the 15 years of withdrawals, he would like to leave an inheritance of $650,000 to his nephew Frodo. He can afford to save $2,100 per month for the next 15 years.

   

Required:

If he can earn a 11 percent EAR before he retires and a 8 percent EAR after he retires, how much will he have to save each month in years 16 through 30?

$5,198.12

$6,685.05

$4,994.27

$5,096.20

$6,092.78

Answer 1

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