Question

In: Accounting

You have a couple who are 31 years old, and want to retire at the age...

You have a couple who are 31 years old, and want to retire at the age of 67. Knowing that, the couple has a combined annual income of $95,000 today.

1. They are curious to find out if college costs $90,000 per year when their child gets into college in 19 years, how much is the total cost of a college education (that lasts for 4 years) in today’s dollars if the cost of money is 8%? Assume you pay the tuitions at the beginning of each year and the annual tuition cost will grow at a 6% annual rate. [Hint: first compute the beginning value (at 19th year) of the tuition payment stream over the 4 year period]

Expert Solution

Answer)

Calculation of Present value of College fees

Year Beginning	Annual fees	Present value factor at 8%	Present value
19	90,000.00	0.250249	22,522.41
20	95,400.00	0.231712	22,105.32
21	101,124.00	0.214548	21,695.95
22	107,191.44	0.198656	21,294.22
Total	87,617.91

Therefore total cost of education in today’s dollars if $ 87,617.91 or $ 87,618 (Approximately).

Working Notes:

Calculation of amount of tuition fees for each of four year of college

As specified in the question,

The college fees for 1st year to be paid in the beginning of 19th year from now will be $ 90,000.

Since the fees is expected to grow at 6% annual rate, the fees will be:

For 2nd year of college (to be paid in the beginning of 20th year from today) = $ 90,000 + ($ 90,000 X 6%)

= $ 90,000 + $ 5,400

= $ 95,400

For 3rd year of college (to be paid in the beginning of 21st year from today) = $ 95,400 + ($ 95,400 X 6%)

= $ 95,400 + $ 5,724

= $ 101,124

For 4th year of college (to be paid in the beginning of 22nd year from today) = $ 101,124 + ($ 101,124 X 6%)

= $ 101,124 + $ 6,067.44

= $ 107,191.44

ekkarill92 answered 1 year ago

You are 30 years old and want to retire at the age of age 65 and...

You are 30 years old and want to retire at the age of age 65 and expect to live another 25 years. On the day you retire, you want to have $900,000 in your retirement savings account. a) If you invest monthly starting one month from today and your investment earns 6.0 percent per year, How much money do you need to invest every month until you retire? b) You're retired with $900,000 and you have 25 more years. You...

You are 40 years old and want to retire at age 65. Each year, starting one...

You are 40 years old and want to retire at age 65. Each year, starting one year from now, you will deposit an equal amount into an investment account that pays 4% interest. The last deposit will be on your 65th birthday. On your 65th birthday, you will switch the accumulated savings into a safer bank account that pays only 4.2% interest. You will withdraw your annual income of $110,000 at the end of that year (on your 66th birthday)...

You are 40 years old and want to retire at age 60. Each year, starting one...

You are 40 years old and want to retire at age 60. Each year, starting one year from now, you will deposit an equal amount into an investment account that pays 4.6% interest. The last deposit will be on your 60th birthday. On your 60th birthday, you will switch the accumulated savings into a safer bank account that pays only 4.2% interest. You will withdraw your annual income of $130,000 at the end of that year (on your 61st birthday)...

You are 20 years old and you want to retire when you have saves$1 million....

You are 20 years old and you want to retire when you have saves $1 million. You have inherited $250,000 and will not add any other savings to that amount. The money will be conservatively invested at 6% per annum. At what age will you be able to retire a millionaire?

A client, 35 years old, who would like to retire at age 65 (30 years from...

A client, 35 years old, who would like to retire at age 65 (30 years from today). Her goal is to have enough in her retirement account to provide an income of $75,000 a year, starting a year after retirement or year 31, for 25 years thereafter. She had a late start on saving for retirement, with a current balance of $10,000. To catch up, she is now committed to saving $5,000 a year, with the first contribution a year...

Assume you are 32 years old and plan to retire in 35 years at age 67....

Assume you are 32 years old and plan to retire in 35 years at age 67. You are currently earning $75,000/year and expect average annual salary increases of 4.0%/year over the next 35 years. You have $0 saved for retirement. You are trying to determine how much money to save (invest) each year in your 401(k) Plan to fund your retirement in order to pay yourself 70% of your final salary each year (that increases with inflation). [Remember this is...

You have decide to retire in 20 years and you want to have $2,000,000 e in...

You have decide to retire in 20 years and you want to have $2,000,000 e in the bank when you retire. You currently have $50,000 k. in the bank. The bank pays 4.00% interest compounded yearly. How much money do you need to deposit in your bank account each year in order to meet your retirement goal?

You wish to retire in 18 years , at which time , you want to have...

You wish to retire in 18 years , at which time , you want to have accumulated enough money to receive an annuity of $500 monthly for 20 years of retirement. During the period before retirement you can earn 4% annually,while after retirement you can earn 6 percent on your money. What monthly contributions to the retirement fund will allow you to receive the 500 dollars annuity?

1. You are now 50 years old and plan to retire at age 65. You currently...

1. You are now 50 years old and plan to retire at age 65. You currently have a stock portfolio worth $150,000, a 401(k) retirement plan worth $250,000, and a money market account worth $50,000. Your stock portfolio is expected to provide annual returns of 12 percent, your 401(k) investment will earn 9.5 percent annually, and the money market account earns 5.25 percent, compounded monthly. (12 points) a. If you do not save another penny, what will be the total...

Assume that you are 30 years old today and expect to retire when you reach age...

Assume that you are 30 years old today and expect to retire when you reach age 65. If you were to retire today, you would like a fixed (pretax) income of $60,000 per year (in addition to Social Security) for a period of 15 years (your approximate life expectancy at age 65). However, you realize that price inflation will erode the purchasing power of the dollar over the next 35 years and you want to adjust your desired retirement income...