Pensions Your pension plan is an annuity with a guaranteed return of 4% per year (compounded...

Pensions Your pension plan is an annuity with a guaranteed return of 4% per year (compounded quarterly). You can afford to put $1,900 per quarter into the fund, and you will work for 40 years before retiring. After you retire, you will be paid a quarterly pension based on a 25-year payout. How much will you receive each quarter? (Round your answer to the nearest cent.) $ We can use the TMV solver

Solutions

Expert Solution

Information provided:

Quarterly saving= $1,900

Time= 40 years*4 = 160 quarters

Quarterly interest rate= 4%/4 = 1% per quarter

The question is solved by first computing the future value of quarterly saving.

The future value is calculated by entering the below in a financial calculator:

PMT= -1,900

N= 160

I/Y= 1

Press CPT and FV to compute the future value.

The value obtained is 743,627.

Therefore, the my pension fund will have $743,627 in 40 years.

Next, the quarterly payout during retirement is calculated.

The quarterly payout is calculated by entering the below in a financial calculator:

PV= -743,627

N= 25*4 = 100

I/Y= 1

Press CPT and PMT to compute the amount of quarterly payout.

The value obtained is 11,798.20.

Therefore, the amount I will receive each quarter is $11,798.20.

jeff jeffy answered 2 years ago

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