Question

In: Finance

1. You wish to retire with $5 Million in 45 years. You estimate you will earn...

1. You wish to retire with $5 Million in 45 years. You estimate you will earn 8% on your investments. How much must you invest each year in order to reach your goal?a. Ordinary (1st payment made at the end of the year)b. Due (1st payment made today)

2. You would like to withdraw $60,000 per year during retirement. You expect to live 20 years after you retire at age 65. How much do you need to have saved by the time you retire if you can earn 4% on your funds?

Solutions

Expert Solution

1.a.Information provided:

Future value= $5,000,000

Time= 45 years

Interest rate= 8%

Ordinary Annuity refers to an annuity that occurs at the end of the period. The future value of an ordinary annuity can be computed with the help of a financial calculator in the default END mode.

Enter the below in a financial calculator to compute the annual investment:

FV= 5,000,000

N= 45

I/Y= 8

Press the CPT key and PMT to compute the amount of annual investment.

The value obtained is 12,936.42.

Therefore, the amount of ordinary annuity is $12,936.42.

b.Annuity due refers to annuity that occurs at the beginning of a period.

This can also be solved using a financial calculator by inputting the below into the calculator:

The financial calculator is set in the end mode. Annuity due is calculated by setting the calculator to the beginning mode (BGN). To do this, press 2nd BGN 2nd SET on the Texas BA II Plus calculator.

Enter the below in a financial calculator to compute the annual investment:

FV= 5,000,000

N= 45

I/Y= 8

Press the CPT key and PMT to compute the amount of annual investment.

The value obtained is 11,978.17.

Therefore, the amount of annuity due is $11,978.17.

2.Information provided:

Annual withdrawal= $60,000

Time= 20 years

Interest rate= 4%

The question is solved by computing the present value.

Enter the below in a financial calculator to compute the present value:

PMT= 60,000

N= 20

I/Y= 4

Press the CPT key and PV to compute the present value.

The value obtained is 815,419.58.

Therefore, I need to save $815,419.58 by the time I retire.

In case of any query, kindly comment on the solution.


Related Solutions

(1) You wish to retire in 10 years, at which time you want to have accumulated...
(1) You wish to retire in 10 years, at which time you want to have accumulated enough money to receive an annual annuity of $13,000 for 15 years after retirement. During the period before retirement you can earn 9 percent annually, while after retirement you can earn 11 percent on your money. What annual contributions to the retirement fund will allow you to receive the $13,000 annuity? Use Appendix C and Appendix D for an approximate answer, but calculate your...
You are planning on saving for retirement. You wish to retire in 40 years, and you...
You are planning on saving for retirement. You wish to retire in 40 years, and you would like to withdraw an annual sum each year to live on starting 40 years from today - You have determined that you will need $100,000 to live on (in today’s dollars) - You estimate inflation (cost of living) to be 3% - Your estimated rate of return pre-retirement is 10%; in retirement 7% Assume your life expectancy once retired is another 20 years....
You plan to retire in 30 years. Beginning in 31 years from now you wish to...
You plan to retire in 30 years. Beginning in 31 years from now you wish to have an annual retirement income of $80,000 / year as measured in today’s dollars. The inflation rate is assumed to be 2.5%. Each year in retirement you wish to have your retirement income grow by 3% per year. You plan on living for 35 years in retirement. Starting in one year from now you are going to make annual deposits into a savings account....
You wish to retire in 18 years , at which time , you want to have...
You wish to retire in 18 years , at which time , you want to have accumulated enough money to receive an annuity of $500 monthly for 20 years of retirement. During the period before retirement you can earn 4% annually,while after retirement you can earn 6 percent on your money. What monthly contributions to the retirement fund will allow you to receive the 500 dollars annuity?
Consider the following information: You will work for (maybe) 45 years and, then, retire. You will...
Consider the following information: You will work for (maybe) 45 years and, then, retire. You will live for an additional 25 years (more or less) after you retire. You estimate that you will need $12,000 per month through your retirement years. (You are not absolutely sure about the amount or if you need it at the beginning or end of each month.) You want to leave (about) $1,000,000 to your heirs upon your demise. You expect to earn (around) 12%...
You wish to retire in 30 years. You think that you will need an income $5,000...
You wish to retire in 30 years. You think that you will need an income $5,000 every month from an ordinary                                          annuity. The current interest rate is 6% (compounded monthly). You wish to receive that payment for 23                           years after retirement. What lump sum in 20 years will you require to purchase that annuity. How much must you contribute monthly starting today to be able to buy that annuity (6% compounded     monthly) If you estimate the inflation...
You would like to retire in 45 years. You expect that you will need $80,000 of...
You would like to retire in 45 years. You expect that you will need $80,000 of today’s purchasing power every year during retirement, with the first withdrawal coming in exactly 45 years. You expect to make 30 annual withdrawals from your retirement account. Annual inflation is expected to be 2%, and you can invest your funds at a 9% nominal interest rate. (a) What will the nominal value of your first withdrawal be? (b) How much will you need in...
Assume that you plan to retire in 35 years and that you estimate you will need...
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...
1- ) You want to have $3 million when you retire in 40 years. If you...
1- ) You want to have $3 million when you retire in 40 years. If you can earn 12% per year, how much do you need to deposit on a monthly basis if the first payment is made in one month? 2- ) What if the first payment is made today? 3- ) You are considering ABC’s preferred stock that is expected to pay a quarterly dividend of $1.00 forever. If your desired return is 10% per year, how much...
You wish to retire in 30 years’ time and draw an annual income of $25,000 at...
You wish to retire in 30 years’ time and draw an annual income of $25,000 at the end of each year for a period of 25 years. How much money will you need to invest now (to the nearest dollar) if you can earn 8% on your investments. Group of answer choices A. $11,787 B. $118,609 C. $26,521 D. $266,869 At what interest rate would you need to earn from an investment in order to accumulate $17,632 after 5 years...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT