In: Accounting
Lady Gaga is 30 and already worried about her future. She wants
to make sure that she’ll be able to keep up with the life standard
she got used to – at the end of the day, she was born this way and
wants to die this way, too. She has couple of goals that she wants
to achieve after she retires. First, she wants to be able to
withdraw $150,000 each month to cover her clothing and make-up
expenses for 15 years after she stops singing and retires at the
age of 65. Second, she wants to be able to donate $3,000,000 to St.
Jude Children’s Hospital at the age of 75. Lastly, the year she
retires, she also wants to buy a house in Honolulu, HI that costs
$7,500,000 today, with the price being estimated to increase by 1%
each year.
a. If she can earn 15% compounded monthly on her retirement
account, how much does she need to deposit into her account each
month until retirement to achieve her goals?
b. What if she decides to save $40,000 each month for the first 10
years, then not to save for 15 years, and to go back to saving and
investing for the last 10 years before retirement – how much would
she then need to save every month for the last 10 years to achieve
the same goals?