Question

Bilbo Baggins wants to save money to meet three objectives. First, he would like to be able to retire 30 years from now with retirement income of $25,000 per month for 15 years, with the first payment received 30 years and 1 month from now. Second, he would like to purchase a cabin in Rivendell in 20 years at an estimated cost of $1,552,000. Third, after he passes on at the end of the 15 years of withdrawals, he would like to leave an inheritance of $850,000 to his nephew Frodo. He can afford to save $2,400 per month for the next 20 years.

   

Required:

If he can earn a 11 percent EAR before he retires and a 10 percent EAR after he retires, how much will he have to save each month in years 21 through 30?

A) $6,910.36

B) $9,549.36

C) $10,444.85

D) $7,051.39

E) $7,192.41

Answer 1

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