Question

Assume that your father is now 50 years old, plans to retire in 10 years, and expects to live for 25 years after he retires - that is, until age 85. He wants his first retirement payment to have the same purchasing power at the time he retires as $45,000 has today. He wants all his subsequent retirement payments to be equal to his first retirement payment. (Do not let the retirement payments grow with inflation: Your father realizes that if inflation occurs the real value of his retirement income will decline year by year after he retires). His retirement income will begin the day he retires, 10 years from today, and he will then receive 24 additional annual payments. Inflation is expected to be 3% per year from today forward. He currently has $150,000 saved and expects to earn a return on his savings of 6% per year with annual compounding.

Step 1. Calculate retirement payments, beginning at t=10

Step 2. Calculate the value of current savings at t=10

Step 3. Calculate the value of the annuity due of retirement payments at t=10

Step 4. Calculate the net amount that must be accumulated at t=10 to receive desired retirement payments

Step 5 Calculate the value of annual deposit needed to meet desired retirement goal

How much must he save during each of the next 10 years (with equal deposits being made at the end of each year, beginning a year from today) to meet his retirement goal? (Note: Neither the amount he saves nor the amount he withdraws upon retirement is a growing annuity.) Do not round intermediate calculations. Round your answer to the nearest dollar.

Please show answers using Excel.

Answer 1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

| 0 = = = = = 3 g W ? v 1 ENG 01:17 24-02-2020 24 G6 C D E F G H - 2 45000 10 25 3 retirement income today 4 years to retirement 5 years of retirement 6 inflation rate 7 savings 8 rate of return 3% 150000 10 calculate value of savings in 10 years 11 savings at t=10 268627.15 (=FV(B8,B4,,-B7)] 13 calculate value of fixed retirement income in 10 years 14 retirement income at t=10 60476.24 (=B3*(1+B6) B4) (=PV(B8,B5,-B14)] 16 calculate value of 25 begiining of year retirement payments at t-10 17 retirement payments at t=10 819474.63 18 19 calculate net amount needed at t=10 20 value of retirement payments 819474.63 21 value of savings 268627.15 22 net amount needed 550847.48 23 calculate annual savings needed for next 10 years 24 annual savings needed for retirement 41792 25 ... NPER APR CPI ear FVA 52 pva 53 STATE 56 57 58 59 54 MORTGAGE 51 55 52 | s11 s12 [=B17] [=B11] (=B20-B21) OR (=B17-811] (=PMT(B8,B4,-B22)] s13 s14 s15 316 317F 51 518f ... :