Question

Answers to these questions are related to your actual age (28 years & 11 months). Assume you drink one coffee per day, 5 days a week. Assume coffee price is $4.00. That makes it $20 per week and $80 per month. Assume you can invest $80 per month in the stock market and assume you can earn 1 % per month on your stock investment or 12 % per year.

B. Assume that when you get to 65 (retirement age) you switch your funds from stock market investment to bond market investment. Assume you can earn 7% on your bond investment. You decide to withdraw a constant amount each year for the next 20 years when you get to retirement age of 65. How much will be your annual withdrawal from age 66 to 85 (Nothing left at 85) if you switch your coffee drinking to stock and bond investments.

Answer 1

First we determine the amount collected at age 65
N	443
Monthly deposit	80
Rate	1%
Amount available at age 65	$648,838.46

Amount withdrawable
N	20
Rate	7.00%
PV of amount available at age 65	$648,838.46
Amount that can be withdrawn	($61,245.76)

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