Question

Upon his employment at the age of 22, Robert began to make a series of equal year-end deposits of $1100 to his retirement fund. After working for 5 years, he is now able to increase his saving. He plans to increase his annual deposits to $2200, starting at the end of next year (i.e., at the age of 28). He also intends to increase the amount by $400 each year for the next 13 years (i.e. until the age of 41), and continue his equal deposits of $7400 each year until the age of 60. He expects to retire at the age of 65. How much would his retirement fund be worth at the time of his retirement if it earns a rate of return of 10% per year?

Answer 1

Ans - Cash flow pattern -

1. CF0 =0 (Start,22 year old)

2. CF1 = $1100 , Frequency- 6 (22,23,24,25,26,27 year old)

3. CF2 = $ 2200, Frequency -1 (28 years old)

4. CF3 = $2600, Frequency-1 (29 year old).

5. CF4 = $3000, Frequency-1 (30 year old).

6. CF5 = $3400, Frequency-1 (31 year old).

7. CF6 = $3800, Frequency-1 (32 year old).

8. CF7 = $4200, Frequency-1 (33 year old).

9. CF8 = $4600, Frequency-1 (34 year old).

10. CF9 = $5000, Frequency-1 (35 year old).

11. CF10 = $5400, Frequency-1 (36 year old).

12. CF11 = $5800, Frequency-1 (37 year old).

13. CF12 = $6200, Frequency-1 (38 year old).

14. CF13 = $6600, Frequency-1 (39 year old).

15. CF14 = $7000, Frequency-1 (40 year old).

16. CF15 = $7400, Frequency-20 that is (41,42,43,44,45,46,47,48,49,50,51,52,53,54,55,56,57,58,59,60 year old).

17. CF16 = $0, Frequency- 5 (61,62,63,64,65)

Overall Interest Rate – 10 %

Using Financial Calculator we will put in the above numbers :-

Value of retirement fund when he retires at 65 = $ 2083960.375 (Net Future Value).

Net Present Value of his retirement fund = $31449.32