Question

In: Finance

You would like to have $5 million dollars when you retire at age 65. You are...

You would like to have $5 million dollars when you retire at age 65. You are 25 years old and you want to make your first savings payment immediately. You have not saved any money for your retirement as of yet. Assume interest rate is 7%, how much money must you set aside per year until and including your 65th birthday?

Solutions

Expert Solution

FV of Annuity Due:

Annuity is series of cash flows that are deposited at regular intervals for specific period of time. Here deposits are made at the begining of the period. FV of annuity is future value of cash flows deposited at regular intervals grown at specified int rate or Growth rate to future date.

FV of Annuity DUe = ( 1 + r ) * FV of Annuity

FV of Annuity = (1+r) * CF [ (1+r)^n - 1 ] / r
r - Int rate per period
n - No. of periods

Particulars Amount
FV of Annuity Due $           5,000,000.00
Int Rate 7.000%
Periods 41

Cash Flow = [ FV of Annuity Due * r] / [ ( 1+ r) * [ [ ( 1 + r )^n ] - 1 ] ]
= [ $5000000 * 0.07 ] / [ ( 1 + 0.07 ) * [ [ ( 1 + 0.07 ) ^ 41 ] - 1 ] ]
= [ $5000000 * 0.07 ] / [ ( 1.07 ) * [ [ (1.07 ) ^ 41 ] - 1 ] ]
= [ $350000 ] / [ ( 1.07 ) * [ [ 16.0227 ] - 1 ] ]
= [ $350000 ] / [ ( 1.07 ) * [ 15.0227 ] ]
= [ $350000 ] / [ 16.0743 ]
= $21773.95
Annual deposit required is $ 21773.95

jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

You would like to have $5 million dollars when you retire at age 65. You are 25 years old and you want to make your first savings payment immediately.
You would like to have $5 million dollars when you retire at age 65. You are 25 years old and you want to make your first savings payment immediately. You have not saved any money for your retirement as of yet. Assume interest rate is 7%, how much money must you set aside per year until and including your 65th birthday? How do I do this in excel?
You would like to have $5 million dollars when you retire at age 65. You are 25 years old and you want to make your first savings payment immediately.
You would like to have $5 million dollars when you retire at age 65. You are 25 years old and you want to make your first savings payment immediately. You have not saved any money for your retirement as of yet. Assume interest rate is 7%, how much money must you set aside per year until and including your 65th birthday?
a) You would like to retire 30 years from now with $2 million dollars. If you...
a) You would like to retire 30 years from now with $2 million dollars. If you get a big inheritance now, how much money do you need to deposit now so that it grows to $2 million assuming an annual interest rate of 6% with interest compounded monthly? b) Suppose in question a) that instead of a one-time payment, you want to save monthly for your retirement. How much should your monthly savings be with interest compounded monthly?
You want to have $2.5 million in real dollars in an account when you retire in...
You want to have $2.5 million in real dollars in an account when you retire in 40 years. The nominal return on your investment is 10.3 percent and the inflation rate is 3.7 percent.   What real amount must you deposit each year to achieve your goal? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
You want to have $3 million in real dollars in an account when you retire in...
You want to have $3 million in real dollars in an account when you retire in 30 years. The nominal return on your investment is 11 percent and the inflation rate is 2.5 percent. What real amount must you deposit each year to achieve your goal?
You want to have $6 million in real dollars in an account when you retire in...
You want to have $6 million in real dollars in an account when you retire in 40 years. The nominal return on your investment is 13 percent and the inflation rate is 5.1 percent.    What real amount must you deposit each year to achieve your goal? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
You want to have $2 million in real dollars in an account when you retire in...
You want to have $2 million in real dollars in an account when you retire in 40 years. The nominal return on your investment is 13 percent and the inflation rate is 5 percent. What real amount must you deposit each year to achieve your goal? Multiple Choice • $8,531.47 • $1,972.96 • $8,958.04 • $8,872.73 • $8,104.90
You want to have $1.05 million in real dollars in an account when you retire in...
You want to have $1.05 million in real dollars in an account when you retire in 38 years. The nominal return on your investment is 8 percent and the inflation rate is 1.5 percent. What is the real amount you must deposit each year to achieve your goal? A. $10,667.67 B. $10,878.49 C. $11,194.39 D. $11,302.03 E. $11,744.12
You are planning to retire at the age of 65. You think you live for 5...
You are planning to retire at the age of 65. You think you live for 5 years after you retire, and you will need $50,000 per year (today’s value) at the beginning of each year for your retirement. While you are working, you will put your money in funds which give you average return of 8%. After you retire, you will put your money to safer funds which give you 3.5% retune. The inflation rate is 2%. If you just...
You are 22 now and would like to retire at age of 67. After you retire,...
You are 22 now and would like to retire at age of 67. After you retire, you assume you will live for another 20 years until 87 years old. Suppose you want to withdraw $5,000 at the beginning of each month from your retirement plan after you retire, and the monthly return of your retirement plan is 0.5%. a. In order to support your monthly withdrawal after retirement, how much do you need to accumulate when you are 67? b....
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT