Question

Quantitative Problem 1: You plan to deposit $1,500 per year for 6 years into a money market account with an annual return of 2%. You plan to make your first deposit one year from today.

1. What amount will be in your account at the end of 6 years? Do not round intermediate calculations. Round your answer to the nearest cent.
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2. Assume that your deposits will begin today. What amount will be in your account after 6 years? Do not round intermediate calculations. Round your answer to the nearest cent.
   $  

Quantitative Problem 2: You and your wife are making plans for retirement. You plan on living 30 years after you retire and would like to have $75,000 annually on which to live. Your first withdrawal will be made one year after you retire and you anticipate that your retirement account will earn 10% annually.

1. What amount do you need in your retirement account the day you retire? Do not round intermediate calculations. Round your answer to the nearest cent.
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2. Assume that your first withdrawal will be made the day you retire. Under this assumption, what amount do you now need in your retirement account the day you retire? Do not round intermediate calculations. Round your answer to the nearest cent.
   $  

Answer 1

1)

a)

Future value of Deposit = Deposit per year * ((1 + interest rate)^{no of periods} - 1) / interest rate

Future value of Deposit = $1500 * ((1 + 2%)⁶ - 1) / 2%

Future value of Deposit = $9462.18

b)

Assuming that your deposits will begin today

Future value of Deposit = Deposit per year * ((1 + interest rate)^{no of periods} - 1) / interest rate * (1 + interest rate)

Future value of Deposit = $1500 * ((1 + 2%)⁶ - 1) / 2% * (1 + 2%)

Future value of Deposit = $9651.43

2)

a)

Value of Retirement account = Withdrawal per year * (1 - (1 + interest rate)^{-no of periods} ) / interest rate

Value of Retirement account = $75000 * (1 - (1 + 10%)^-30) / 10%

Value of Retirement account = $707,018.59

b)

Assuming that your first withdrawal will be made the day you retire

Value of Retirement account = Withdrawal per year * (1 - (1 + interest rate)^{-no of periods} ) / interest rate * (1 + interest rate)

Value of Retirement account = $75000 * (1 - (1 + 10%)^-30) / 10% * (1 + 10%)

Value of Retirement account = $777,720.44