Question

In: Accounting

Assume that you plan to retire in 35 years and that you estimate you will need...

  1. Assume that you plan to retire in 35 years and that you estimate you will need an income of $100,000 at the beginning of each year for 30 years, following your retirement. You also plan to donate $1,000,000 to the Georgia Southern University College of Business to endow a scholarship in the name of your favorite finance professor. You will make this endowment exactly 5 years after you retire.

Assume that you will earn 11.00 percent during your working years and 3.50 percent after you retire.

  1. How much must you save every month so that you will meet these goals?

  1. What is the name on the scholarship?

Solutions

Expert Solution

It is assumed that my retirement is at the end of Year 35. I required $ 100,000 from the begining of 36th year and $1,000,000 for scholarship at the end of 40th year.

Here we calculate the future value of saving and present of funds required at the end of year 35.

Let us Assume the total saving per annum = X

Future value of Annuity (at the end of Year 35) = Annuity * C.FVF (11%, 35Years)   

= X * 379.1644

= 379.1644X

C.PVF = Cummulative Future Value Factor.

Present value of Funds Required (At the begining of Year 35) = Annuinty * (1+ C.PVF (3.5%, 29Years) )

= 100,000 *  (1+18.0358)

=$ 1,903,577

Present value of Funds for scholarship (At the begining of Year 35) = Amount * PVF (3.5%, 5Years)

= $1,000,000 * 0.8420

= $ 841,973

The future value of saving and present of funds required at the end of year 35 should be equal. Therefore the resulting equation is as follow:-

379.1644 X = $ 1,903,577 + $ 841,973

X = $ 7,241 p.a i.e $ 603.42 p.m

2. The Name of Scholarship Scheme is Vivakananda Scholarship Fund.

ekkarill92 answered 1 year ago
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