Question

Chapter 2 Financial Planning Exercise 7 Funding a retirement goal Austin Miller wishes to have $1,000,000 in a retirement fund 25 years from now. He can create the retirement fund by making a single lump-sum deposit today. Use next table to solve the following problems. a. If upon retirement in 25 years, Austin plans to invest $1,000,000 in a fund that earns 4%, what is the maximum annual withdrawal he can make over the following 20 years? Round the answer to the nearest cent. Round PVA-factor to three decimal places. Calculate your answer based on the PVA-factor. Calculate your answer based on the financial calculator. b. How much would Austin need to have on deposit at retirement in order to withdraw $35,000 annually over the 20 years if the retirement fund earns 4%? Round the answer to the nearest cent. Round PVA-factor to three decimal places. Calculate your answer based on the PVA-factor. Calculate your answer based on the financial calculator. C. To achieve his annual withdrawal goal of $35,000 calculated in part b, how much more than the amount calculated in part a must Austin deposit today in an investment earning 4% annual interest? Round PVA-factor to three decimal places. Round your answer to the nearest cent. If an amount is zero, enter "O".

Answer 1

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Answer(a):

a). We know the PVA factor as (1-(1+r)^-n)/r = (1-(1+4%)^^-20)/4% = 13.59 (rounded to 3 decimals)

Also, PMT = PV/PVA factor = 1,000,000/13.59 = $73,583.52

From the Financial calculator: PV = -1,000,000; N = 20 rate = 4%, FV = 0, solve for PMT.

PMT = $73,581.75

Answer(b):

From above, PVA = 13.59

PV = PMT*PVA factor = 35,000*13.59 = $475650

From financial calculator,

PV = $475,661.42

Answer(c):

PLEASE CHECK THE QUESTION AS THE DIFFERENCE BETWEEN PV = $475,661.42 and $1,000,000 is negative and cannot be proceeded further for calculation