Question

Bilbo Baggins wants to save money to meet three objectives. First, he would like to be able to retire 30 years from now with retirement income of $25,000 per month for 25 years, with the first payment received 30 years and 1 month from now. Second, he would like to purchase a cabin in Rivendell in 15 years at an estimated cost of $603,000. Third, after he passes on at the end of the 25 years of withdrawals, he would like to leave an inheritance of $750,000 to his nephew Frodo. He can afford to save $1,600 per month for the next 15 years.

  

Required:

If he can earn a 12 percent EAR before he retires and a 9 percent EAR after he retires, how much will he have to save each month in years 16 through 30?

A) $4,833.06

B) $6,367.65

C) $5,030.33

D) $4,931.69

E) $6,066.58

Answer 1