Question

QUESTION 3

1. You are trying to decide how much to save for retirement. Assume you plan to save $5,000 per year with the first investment made one year from now. You think you can earn 10% per year on your investments and you plan to retire in 43 years, immediately after making your last $5,000 investment. If you hope to live for 20 years in retirement, how much can you withdraw every year in retirement (starting one year after retirement) so that you will just exhaust your savings with the 20th withdrawal? Assume your savings will continue to earn 10% in retirement.

QUESTION 4

1. You are planning to invest $5,000 in an account earning 9% per year for retirement. If you wait 10 years before making the deposit, so that it stays in the account for only 32 years, how much will you have at the end?

QUESTION 5

1. You are planning for retirement. Assume that the most you can afford to save is $1,000 per year, with the first investment made one year from now. You want to retire with $1,000,000 in your investment account. You plan to retire in 43 years, immediately after making your last $1,000 investment. How high of a return do you need to earn on your investments in order to achieve your goal?

   Note: Express your answer as a percentage with no percent sign. That is, enter 10.35 if your answer is 0.1035 or 10.35%.

Answer 1

3

Particulars		Annuity payment	Total
Payment		$                    5,000.00
× future value factor		592.400692
Future value of money		$            2,962,003.46	$   2,962,003.46
× sinking fund factor			$0.1174596
Annual payment required			$      347,915.81

Annual payment on retirement is $347,915.81

4

Particulars		Annuity payment
Payment		$                    5,000.00
× future value factor		164.036987
Future value of money		$                820,184.93

Fund value in 32 years is $820,184.93

5

Calculator
Inputs:
PV	-
PMT	(1,000)
FV	1,000,000
N	43
Output:
I/Y = IRR=	11.74%

Required rate of return is 11.74%

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