Question

Could you show your work in Excel Please. Today is your 25th birthday. You have decided that it is necessary to plan your own retirement since you are not confident that government benefits will be available when you retire. You will make annual payments into an account earning 5% APY starting on your next birthday (26th) a year from now. Your last payment will occur on your 70th birthday. You have decided that you need to plan for payments of $500,000 per year and that there will be a total of 20 yearly payments made starting on your 70th birthday. A. How much should be in your account on your 70th birthday in order to accomplish your goal? B. How much will your annual payment until you retire need to be in order to accomplish your goal? C. Suppose this is your 45th birthday, instead of your 25th birthday in the problem above. Now, how much will your annual payment until you retire need to be in order to accomplish your goal

Answer 1

A

Payment starts from 70th birthday. So it is Annuity due problem.

Excel function for Annuity due= -pv(rate, number of years-1, Annuity)+Annuity

B.

Present value at 70th birthday is future value with reference to Today.

Payment to accumulate future starts from end of year. So it is ordinary Annuity.

Excel function = -pmt( rate, number of periods, present value, future value)