Question

In: Finance

Macon would like to begin planning for retirement. He has as of his 60th birthday collected...

Macon would like to begin planning for retirement. He has as of his 60th birthday collected $150,000 which he plans to deposit in a bank account earning 4.5% per year compounded yearly. Macon is also willing to begin saving an amount on his 61st birthday, and increase that amount by 3.5% every year. He would like to avail $45,000 on his 70th birthday and keep getting an amount greater than that by 6% every year till his 75th birthday. How much money should he deposited on his 61st birthday?

Group of answer choices

$3,645

$3,951

$3,842

$7,279

Solutions

Expert Solution

Cash inflow expected
Age 70 71 72 73 74 75
Cash value 45000.00 47700.00 50562.00 53595.72 56811.46 60220.15
PV @ 4.5% 279876.44
To accumulate this corpus, Macon has already deposited 150,000 which would amount to
Value of 150K in 10 years 232945.41
Additional amount required 46931.03
Age Deposit amount Value at 70
61 3645.36 5417.36 (Using Goal seek in excel)
62 3772.95 5365.52
63 3905.00 5314.17
64 4041.68 5263.32
65 4183.14 5212.95
66 4329.55 5163.07
67 4481.08 5113.66
68 4637.92 5064.73
69 4800.25 5016.26
Total 46931.03
So correct answer is $3645

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