Question

In: Finance

You want to be able to spend the current equivalent of $65,993per year during your...

You want to be able to spend the current equivalent of $65,993 per year during your retirement that will start in 12 years, and go for 29 years.

You expect inflation to be 4% per year during your retirement.

How much would you have to invest in nominal terms in years 1 to 10, to fully pay for your retirement if your investments earn 7.67% APR (annual compounding)

Expert Solution

Todays equivalent after 29 years at 4% inflation = 65993 * (1+0.04)^12

= 105656.919196

Retirement will last for 29 years

Present Value of Cash Flow required after 12 years =

where r is the rate of Return for compounding period = 7.67%

n is the no of compounding period = 29 years

=

= 1215966.59534

Now, retirement will start in 12 years but we can deposit only for ten years, so

Present value required after 10 years (2 years before the retirement)

= 1215966.59534 / (1+0.767)^2

= 1048895.49032

Now,

Future Value of Annuity = 1048895.49032

=1048895.49032

r =0.0767

n = 10

= 1048895.49032

Periodic Paymnet * 14.261506408 = 1048895.49032

Periodic Paymnet = 73547.37

jeff jeffy answered 2 years ago

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