Question

You want to come up with a plan to save for retirement. You will contribute to your retirement account monthly for 40 years. One month after your last contribution you will begin monthly withdrawals of $7,500 from that retirement account. You earn 6.6% APR while you’re contributing to your retirement savings and 3.6% APR while you are withdrawing. You want to have enough money to finance 35 years in retirement. (Assume compounding frequencies match the payment frequencies.)

What kind of cash flow pattern are the retirement withdrawals?

a.Lump sum b.Annuity c. Perpetuity d. Growing perpetuity

What variable would you solve for to find the value of all the retirement withdrawals at the beginning of retirement?

a. Present value b. Payment c.Interest rate d. Time e. Future Value

What is the value of the retirement withdrawals at the beginning of retirement?

What kind of cash flow pattern is the savings contributions?

a. Lump sum b. Annuity c. Perpetuity b. Growing perpetuity

What variable would you solve for to find the monthly savings contribution?

a. Present value b. Payment c. Interest rate d. Time e. Future Value

What is the monthly savings contribution you must make to fully fund your retirement?

Answer 1

As per rules I am answering the first 4 subparts of the question

1: b

The withdrawals are annuity since they are regular and equal withdrawals.They occur at regular intervals.Lumpsum refers to one flat sum of money. Perpetuity refers to annuity that goes on forever which is not the case here.

2: a

The value of all the annuity during retirement period at the start of retirement is the present value of the annuities. Interest rate refers to the rate of interest during this period. Future value will refer to the value at the end of the period.

3:

Using financial calculator

Input: PMT = -7500

I/Y = 3.6/12 = 0.3

N =35*12 = 420

Solve for PV as 1,789,526.08

Value of the withdrawals at the beginning of retirement = $1,789,526.08

4: b

The deposits are annuity since they are regular and equal amounts. They occur at regular intervals. Lumpsum refers to one flat sum of money. Perpetuity refers to annuity that goes on forever which is not the case here.