Question

Help You are a financial adviser working with a client who wants to retire in eight years. The client has a savings account with a local bank chat pays 9% annual interest. The client wants to deposit an amount that will provide her with $1,004,500 when she retires. Currently she has $301,800 in the account. (FV of $1. PV of $1. FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided.) How much additional money should she deposit now to provide her with $1,004,500 when she retires? (Round your answer to nearest whole dollar.) Additional deposit amount

Answer 1

1) Required Future Value after eight year (i.e at the time of retirement) = $1,004,500

Present Value Factor(8 yrs, 9%) = 0.5019

Required Present Value of deposit = Future Value*PVF(8 yrs, 9%)

Required Present Value of deposit = $1,004,500*0.5019 = $504159

Additional Deposit Amount = Total Deposit Required - Amount already deposited in account

= $504,159 - $301,800 = $202,359

2) The deposit required today will be equal to present value of each withdrawal of $21,900 for four years by Judge's granddaughter.

Deposit Amount = Withdrawal for Tuition*PVAF(4 yrs, 8%)

= $21,900*3.3121 = $72,535

Therefore Judge should deposit $72,535 today to provide Emma with a fund to pay for her college tuition.