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 $22,000 per month for 20 years, with the first payment received 30 years and 1 month from now. Second, he would like to purchase a cabin in Rivendell in 20 years at an estimated cost of $1,423,000. Third, after he passes on at the end of the 20 years of withdrawals, he would like to leave an inheritance of $500,000 to his nephew Frodo. He can afford to save $2,200 per month for the next 20 years.

  

Required:

If he can earn a 11 percent EAR before he retires and a 7 percent EAR after he retires, how much will he have to save each month in years 21 through 30?

$12,625.77

$9,327.65

$11,842.34

$9,708.37

$9,518.01

Answer 1