Question

In: Economics

At 20 years old, Josh is an avid saver. He wants to put an equalamount...

At 20 years old, Josh is an avid saver. He wants to put an equal amount each year from age 21 to 50 (30 years) such that starting at age 65 he can make a guaranteed annual withdrawal of $45,000 forever without touching the corpus, which will be the inheritance money for his family. He will make no deposits during the years of age 51 through 65. At a conservative return of 6.5% per year for all the years, what amount must he invest each year from age 21 through 50?

The amount that must be invested each year is $

Solutions

Expert Solution

He will be making annual withdrawal of $45,000 starting the year 65 years for an infinite time period. Thus the amount will be equal to the interest income of the deposit. Assume the corpus amount is $A and interest income = $45,000

A = 45,000/0.065 = $692,307.69

Corpus amount = $692,307.69

Now assume the annual deposit made by the investor = $S

S = 629,307.69 (A/F, 6.5%, 30) (P/F, 6.5%, 14)

S = 629,307.69 * 0.0116 * 0.4141

S = $3,325.5415


Related Solutions

At 20 years old, Josh is an avid saver. He wants to put an equal amount...
At 20 years old, Josh is an avid saver. He wants to put an equal amount each year from age 21 to 50 (30 years) such that starting at age 65 he can make a guaranteed annual withdrawal of $45,000 forever without touching the corpus, which will be the inheritance money for his family. He will make no deposits during the years of age 51 through 65. At a conservative return of 6.5% per year for all the years, what...
Case study Josh Wallace Demographic data Josh Wallace is an indigenous 20-year-old second-year university student. He...
Case study Josh Wallace Demographic data Josh Wallace is an indigenous 20-year-old second-year university student. He likes to write music and plays several musical instruments, including the didgeridoo. He is studying music at university and hopes to compose music for orchestras. Josh works part-time as a barista in a coffee shop and performs with an indigenous dance group. He lives in the city with his mother’s sister, her three teenage children, and Uncle Bill, the brother of his grandmother. Josh’s...
Josh Adams is 76 years old. Josh has always been very active and busy during his...
Josh Adams is 76 years old. Josh has always been very active and busy during his life. He was a welder until he retired at age 60. Since then, he has kept busy fishing, hunting, and golfing. In the past 5 years, Josh has realized that his body has begun to age and he had been experiencing some new aches and pains. Josh decided to see his physician to get some answers about what he is experiencing. Josh states that...
(a). A college student is 23 years old and a recent graduate. He wants to start...
(a). A college student is 23 years old and a recent graduate. He wants to start saving for his retirement. He plans to save $2000 per year in an online stock account that pays annual return of 12%. If he sticks to the plan, how much money will he have at the age of 65? (make a time-line). (b). Suppose he starts saving for the retirement at the age of 40. If he uses the same plan above, how much...
Tyler is 22 years old and wants to be a bodybuilder. He works hard during the...
Tyler is 22 years old and wants to be a bodybuilder. He works hard during the week at his job so he goes out to party every Friday and Saturday night in which he drinks a lot of alcohol. Recently, Tyler has checked his weight and saw that his fat mass has increased. He doesn’t understand why this is the case when he tracks his carbs, protein, and fat every day. He tracks his calories every day except when he...
our client is 20 years old. She wants to begin saving for retirement, with the first...
our client is 20 years old. She wants to begin saving for retirement, with the first payment to come one year from now. She can save $8,000 per year, and you advise her to invest it in the stock market, which you expect to provide an average return of 11% in the future. If she follows your advice, how much money will she have at 65? Do not round intermediate calculations. Round your answer to the nearest cent. $    How...
Josh recognizes that not only will he have the costs of attending school, but he will...
Josh recognizes that not only will he have the costs of attending school, but he will also be giving up a salary while he attends school. He figures the average salary for those with only a high school diploma is $30,000. He assumes he would receive a 2.4% cost of living raise each year. Determine how much money he will forgo while attending school.
Jack is currently 20 years old and has 1000 dollars in his 401 k. He plans...
Jack is currently 20 years old and has 1000 dollars in his 401 k. He plans to put in additional 1000 dollars every year. He is not sure about the allocation so decides to put 50 % in a stock fund and 50 % in the bond fund. If the future fund growth performance is same as the historical growth; Forecast how much   will Jack have in each fund and calculate his asset allocation percentage based the forecasted amount at...
Part 1: You are a diligent saver who started with nothing but manages to put away...
Part 1: You are a diligent saver who started with nothing but manages to put away $250 at the end of each month, owed largely to your total abstinence from avocado toast and fancy coffee. If you keep up this habit for a total of 15 years with your savings growing at 7.50% (monthly compounded), what nominal wealth can you look forward to in your investment account at the end of your savings efforts? $ Part 2: Allowing for an...
avid Berkowitz was known as the “Son of Sam”. He was a serial killer in the...
avid Berkowitz was known as the “Son of Sam”. He was a serial killer in the NYC area during the span of 1976-1977. Prior to his apprehension, the media coverage of the events were at a fever pitch. The newspapers, to some degree, sensationalized the events and aided in spreading a panic across the city. People were scared, curfews were observed and it made a significant social impact. This week, we’ll explore the effect of serial killers on society and...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT