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On the advice of his C.P.A., a 50 year-old sole-proprietor begins an I.R.A. to save for...

On the advice of his C.P.A., a 50 year-old sole-proprietor begins an I.R.A. to save for his retirement.  He makes a series of 15 equal deposits (the first such deposit is made in one year and the last when he is 65).  When he turns 66, the businessman wants to withdraw $35,000 per year for 20 years.  If money grows at 4.3 % (effective rate) during the accumulation period and at 3.3% per annum thereafter, how much money does he need to deposit into his retirement fund each year?

Solutions

Expert Solution

Money to be accumulated at the time of retirement is the PV of ordinary annuity of $35,00 each, for 20 years= $506,557.70

Money to be deposited in the retirement fund in each of the 15 years (en-of-year) is the FV of an ordinary annuity= $24,739.26

Calculation as below:


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