Question

Problem 5-57 Spreadsheet Problem (LG2, LG9)

Consider a person who begins contributing to a retirement plan at age 25 and contributes for 40 years until retirement at age 65. For the first ten years, she contributes $2,300 per year. She increases the contribution rate to $4,300 per year in years 11 through 20. This is followed by increases to $9,300 per year in years 21 through 30 and to $14,300 per year for the last ten years. This money earns a 8 percent return.

  

First compute the value of the retirement plan when she turns age 65. (Round your answer to 2 decimal places.)

  

Value

$

  

Compute the annual payment she would receive over the next 40 years if the wealth was converted to an annuity payment at 7 percent. (Round your answer to 2 decimal places.)

Answer 1

Cumulative value of first 10 year payment of $2,300 per year at end of year 10 is calculated in excel and screen shot provided below:

Cumulative value of first 10 year payment of $2,300 per year at end of year 10 is $33,319.09.

Now,This value is considered as present value of next period that $4,300 per for year 11 to year 20. Cumulative value of first 20 year is calculated in excel and screen shot provided below:

Cumulative value at end of year 20 is $134,225.64.

Now,This value is considered as present value of next period that $9,300 per for year 21 to year 30. Cumulative value of first 30 year is calculated in excel and screen shot provided below:

Cumulative value at end of year 30 is $424,508.13.

Now,This value is considered as present value of next period that $14,300 per for year 31 to year 40. Cumulative value of first 40 year is calculated in excel and screen shot provided below:

Cumulative value at end of year 40 is $1,123,639.05.

b.

40 year annuity which future value is equal to $1,123,639.05 at 7% interest rate is calculated in excel and screen shot provided below:

Annuity value is $5,628.46.