Question

In: Finance

James and his wife would like to retire in 23 years. Upon retirement they want to...

James and his wife would like to retire in 23 years. Upon retirement they want to spend the first 10 years traveling around the world. To travel in the style they are accustomed they will require $65,000 in each of the 10 years. Their first payment of $65,000 will be 23 years from today and there will be 10 total yearly payments of $65,000. After the years of traveling they then want to live in a small retirement village in Charleston. For living expenses they would like to receive yearly income of $50,000 per year in each of the next 25 years after they finish traveling (a total of 25 yearly $50,000 payments with their first payment beginning the year after their quit traveling).
In order to save up for these expenses, assume that James and his wife plan to deposit the same amount of money for the next 15 years (with the first deposit being one year from today) in an account paying 9% interest compounded annually (they don’t want to be burdened with saving money the last few years before they retire). Calculate the amount of their annual deposits so that when they receive their last $50,000 payment there will be a zero balance in the account.

Solutions

Expert Solution

Solution.>

The correct answer is $10,995.54

I have solved this question in Excel. The formula used are written along with the values. If you still have any doubt, kindly ask in the comment section.

Firstly we have to find the amount they must have after 32 years from now so that it could give 25 annual payments of $50,000. Hence we calculate the PV at 32 years from now. Then we find the Present value at 15 years from now using the answer.

Secondly we have to find the amount they must have after 23 years from now so that it could give 10 annual payments of $65,000. Hence we calculate the PV at 23 years from now. Then we find the Present value at 15 years from now using the answer.

Then we add both the answers to get the total PV at 15 years from now.

This PV calculated above will now become the Future Value in calculating the annual payments for the next 15 years from now.

The formula used in excel is = PMT(Rate,NPER,PV,-FV)

It has been shown in the excel below.

Note: Give it a thumbs up if it helps! Thanks in advance!


Related Solutions

James and his wife would like to retire in 23 years. Upon retirement they want to...
James and his wife would like to retire in 23 years. Upon retirement they want to spend the first 10 years traveling around the world. To travel in the style they are accustomed they will require $65,000 in each of the 10 years. Their first payment of $65,000 will be 23 years from today and there will be 10 total yearly payments of $65,000. After the years of traveling they then want to live in a small retirement village in...
Jeremy would like to retire in 25 years. He would like his retirement income to be...
Jeremy would like to retire in 25 years. He would like his retirement income to be $250,000, and this figure should grow at the same rate as inflation, expected to be 2 percent annually. He expects to live 30 years after he retires, and plans to leave $3 million to TYU after he dies. Jeremy currently has $1,000,000 in his retirement fund. The fund is expected to earn 6 percent annually. Assuming that Jeremy increases his annual retirement savings by...
You plan to retire in 23 years. You would like to maintain your current level of...
You plan to retire in 23 years. You would like to maintain your current level of consumption which is $51,594 per year. You will need to have 29 years of consumption during your retirement. You can earn 5.27% per year (nominal terms) on your investments. In addition, you expect inflation to be 2.06% inflation per year, from now and through your retirement. How much do you have to invest each year, starting next year, for 10 years, in nominal terms...
You are planning to save for retirement. You would like to retire 24 years from today...
You are planning to save for retirement. You would like to retire 24 years from today and you currently have $200,000 set aside. You anticipate saving $750 per month ($500 out of your pocket and $250 from a company match into your 401(k) plan. You anticipating earning an 8.8% rate of return over the next 10 years. After 10 years, you will change your monthly savings to $X per month (combined contribution from you and your employer into your 401(k)...
You are planning to save for retirement. You would like to retire 25 years from today...
You are planning to save for retirement. You would like to retire 25 years from today and you currently have $100,000 set aside. You anticipate saving $420 every other week (26 periods per year – $280 out of your pocket and $140 from a company match) into your 401(k) plan. You anticipating earning an 8.7% rate of return over the next 12 years. After 12 years, you will change your biweekly savings to $X every other week (combined contribution from...
You are planning to save for retirement. You would like to retire 20 years from today...
You are planning to save for retirement. You would like to retire 20 years from today and you currently have $190,000 set aside. You anticipate saving $825 per month ($550 out of your pocket and $275 from a company match into your 401(k) plan. You anticipating earning an 8.5% rate of return over the next 10 years. After 10 years, you will up your monthly savings to $X per month (combined contribution from you and your employer into your 401(k)...
You are planning to save for retirement. You would like to retire 22 years from today...
You are planning to save for retirement. You would like to retire 22 years from today and you currently have $205,000 set aside. You anticipate saving $750 per month ($500 out of your pocket and $250 from a company match into your 401(k) plan. You anticipate earning an 8.7% rate of return over the next 9 years. After 9 years, you will up your monthly savings to $X per month (combined contribution from you and your employer into your 401(k)...
Prof. Washington has a self-managed retirement plan through his University and would like to retire in...
Prof. Washington has a self-managed retirement plan through his University and would like to retire in 10 years and wonders if his current and future planned savings will provide adequate future retirement income. Here’s his information and goals. ▪ Prof. Washington wants a 25-year retirement annuity that begins 10 years from today with an equal annual payment equal to $70,000 today inflated at 3% annually over 10 years. His first retirement annuity payment would occur 10 years from today. He...
peter and her wife is 35 years old. they want to retire at 60. their estimated...
peter and her wife is 35 years old. they want to retire at 60. their estimated life expectancy is 90 peter have a stable job their current annual income 650000 , and their annual expense are 617000 lump sum pension at retirement 320000 their want to maintain their living and spending after they retired their current resources for investment 800000 the average inflation rate will be 3%(pre year) in the future and the after tax investment return is 7%(pre year)...
Kirk Van​ Houten, who has been married for 21 ​years, would like to buy his wife...
Kirk Van​ Houten, who has been married for 21 ​years, would like to buy his wife an expensive diamond ring with a platinum setting on their​ 30-year wedding anniversary. Assume that the cost of the ring will be ​$10,500 in 9 years. Kirk currently has ​$4,433 to invest. What annual rate of return must Kirk earn on his investment to accumulate enough money to pay for the​ ring? The annual rate of return Kirk must earn on his investment to...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT