Question

Investment A
You are 25 years old, having just started working. You are considering a retirement plan for a
retirement at the age of 65. You want to be able to withdraw $79,000 from your savings account on
each birthday for 20 years following your retirement at the age of 65. Your first withdrawal will be
on your 66th birthday. To achieve your goal, you intend to make equal annual deposits in a pension
scheme which offers 7% interest per year.
According to the Investment A, you expect a lump sum of $ 100,000 from a family inheritance fund
that you will receive on your 50th birthday. You will put this fund into the retirement savings
account. Furthermore, you have invested in a portfolio what will be giving you $ 1,900 per year
(from age 25 through age 65) which are to be added the retirement savings account as well.
If you begin making these deposits on your 25nd birthday and continue to make deposits until you
are 65 (your last deposit will be made on your 65th birthday), what is the amount you are required to
deposit annually to be able to make the desired withdrawals at retirement?
Investment B
Here you still have the same retirement plan in mind, in other words you want to be able to
withdraw $79,000 from your savings account on each birthday for 20 years following your
retirement at the age of 65. However, the investment criteria are different:
You have invested in a business which gives an annual net profit of $ 2,900 per year.
Furthermore, your employer will contribute $ 850 to the account per year as part of the company’s
profit-sharing plan starting from age 45 to 65. What amount must you deposit annually now to be
able to make the desired withdrawals at retirement? Which investment will you choose and why?

Answer 1

Investment SA A. Cment Age – 25 Refinement Age - 65 Yearly will deaml forn 66th Year $19000 Pension Scheme Intust – 1%. taunlig Inheritance Fund – 8. 100000 (Recived on 50th Year) Return of face folid - $1,900 lynar. Adsunung Retirement saving ahe has no intent as it is not mentioned expressly. Here we need to calculate tv of Pension Scheme and Sarings in Retirement of inlich would be equal to the present Value of ammal with deauls from year 66. Total while drames from Year 66 for 20 years = $19000 x20 - $ 1580000

Total destmenle to be made. Total Iweatments + Inlace value of Annully Annual Depoul in Pensuon Scheme lungs in Retirement Account - Annal luz seposue + 100000 + (1900x40) . nmal (199.6351) + 100000 +76000 - Annual (199.6351) +10 7600 176000 boCO + Foot7 Total Investments - Total With deamt 116000 Annal (199.6351) & 109600 - 1580000 Depone (199.63 Anual 1580000 - 176000 Sepont - & $7032.83. - 199.6351 Annal bepouss under Inaestment A $7032.63

Investment B Retrument Sanings account - Contribution Annal Profil from t " Bruners Contribution from emplopper a 2900 x (65-25) +850 (65-45) = 2900* (40) + B50(20) 116600 + 17000 = 133000 Total Investment to be made Total Investments - Future Value Retirement of Annulig & Savings Deposit - Anual / (1+7%) 40 1,4133600 Берое ( 21. 1 74. - Ammal hooand Depend (199.6351) + 133000. Total Investments - Total With deamle Amnge (149.6351) + 133.000 1580000 Amal depore - 1560000-133000 - 1240.22 199.6351

Unde Investment o anual depout of $ 1248.22 needs to be made. to Investment A needs to be picked / selleled as you need to contribute lower anual deposure to achiwe your retirement goal. ($ 103 2.63 $ 1248. 22). & Tinal ansuus all rounded off to a decimal places