Question

In: Finance

You wish to retire in 27 years, at which time you want to have accumulated enough...

You wish to retire in 27 years, at which time you want to have accumulated enough money to receive an annuity of $60,000 for 30 years after retirement. During the period before retirement you can earn 9% annually, while after retirement you can earn 7% on your money. What annual contributions to the retirement fund will allow you to receive the $60,000 annuity?

$5,380.73

b.

$7,248.05

c.

$4,648.14

d.

$8,417.52

Expert Solution

First we will calculate the Present of Annuity received each year of $ 60,000 for 30 years.

Where, C= Periodic Payments = $60,000

r = Periodic Interest rate = 0.07

n= no of periods = 30

So, Present value of Annuity at end year 60 is $ 744,542.47

Now, this Present value is the Future value of the annual contribution you had to make to receive annuity of $ 60,000 in retirement.

Where, C= Periodic Payments

r = Periodic Interest rate = 0.09

n= no of periods =27

Future Value = $ 744,542.47

67008.82 = C*9.2450821326

C = $ 7248.05

So, the annual contribution is $ 7248.05

Hence, option B

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jeff jeffy answered 2 years ago

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