In: Finance
Question A.
The $400,000 will give monthly payment of $2,147.29 for 30 years as follows:
Question B
Current monthly pension= $2,800
Monthly Annuity as per part A above= $2,147.29
Total amount available monthly: $2,800+ $2,147.29 = $4,947.29
Current monthly expenses is given as $5,800. Hence the amount as above is not sufficient.
Reducing the current pension of $2,800, annuity required every month to support the current expenses= $5,800-$2,800= $3,000
This amount will be available for about 195.03 months, ascertained using the NPER function of Excel as follows:
In case the expenses are reduced to $4,500 per month, net annuity required= $4,500- $2,800 = $1,700
This amount will be available for 945.60 months as follows:
Question C
It is assumed that the the 'question 2' referred to is question B.
If the monthly expenses are retained at $5,800 the annuity of $3,000 will be available for about 195/12= 16.25 years ie., till the age of 72. On the other hand, if the expenses are at $4,500 per month, it is sufficient for 945/12= 78.75 months. Hence it is better to wait till age 67 for social security benefits and get the enhanced amount of $1,550 per month.
Question D
Doubling period = ln2/ ln(1+r) Where ln2= natural logarithm of 2 which is 0.693147
ln(1+r) = natural logarithm of exponent of growth ie., (1+r)
Given, rate of growth (inflation)= 3.5%,
Hence, Doubling period= 0.693147/In(1.035) = 0.693147/0.034401426= 20.148788686 years.
Bill will be 56+20.15= more than 76 years by then.
Given, Cost of Soda now= $1. Inflation rate=3.5%
Cost of soda after 30 years= (1+3.5%)^30 = 1.035^30 =$2.806794