Ans a) Value at 30 year should be = $80000/interest rate
= $80000/.1
= $800,000
Value at 10 year should be = value at 30 year/(1 + interest rate)^20
= $800,000/(1.1)^20
= $118,914.9
we will use formula of annuity due to this question:
Future value of annuity due = (1 + r) * P ((1+r)^n - 1)/r
Future value of annuity due = $118,914.9
r = 10%
n = 10
118,914.9 = 1.1 * P * ((1.1)^10 - 1)/.1
P = $6783.06
Ans b) similarly we will find for section b
Value at 30 year should be = $80000/interest rate
= $80000/.04
= $2,000,000
Value at 10 year should be = value at 30 year/(1 + interest rate)^20
= $2,000,000/(1.04)^20
= $912,773.90
we will use formula of annuity due to this question:
Future value of annuity due = (1 + r) * P ((1+r)^n - 1)/r
Future value of annuity due = $912,773.90
r = 4%
n = 10
118,914.9 = 1.04 * P * ((1.04)^10 - 1)/.04
P = $73,101.73
In conservative approach one has to deposit almost 11 times than the aggressive approach to finance the retirement fund.
you. 6.27 How much must you deposit each year into your re- tirement account starting now...
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