Suppose you plan to save $6,000 at the end of each coming year for the next...

Suppose you plan to save $6,000 at the end of each coming year for the next 32 years from now for retirement. The interest rate is 4%. How much will you have 32 years from now?

Given that you will have $376208.81 saved on the day you retire, how much will you be able to spend each year starting at the end of the first year of retirement, if you want to spend in perpetuity?

Solutions

Expert Solution

Q1:

We need to find future value of annuity payment;

FV of annuity=A*[(1+r)^n-1]/r

where A=annuity payment; r=interest rate; n=no of years

FV of annuity= 6000*[(1+4%)^32-1]/.04 =376208.81 $

Q2:

We need to find the perpetuity payments;

Present value of perpetuity= P/r

where P=perpetuity payments;

376208.81=P/.04

P= 15048.3524 $

jeff jeffy answered 1 year ago

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