Question

Your sister is celebrating her 32nd birthday. As the party winds down she asks for your assistance in helping her plan for retirements because she knows that you are taking a finance course in your MBA program. She wants to start saving now for retirement at age 62. She tells you that ideally she would like to withdraw $50,000 on an annual basis for at least 20 years starting the year after she retires at age 62. She says that she would be comfortable putting aside some money each year in an annuity and believes that she should be able to earn an 8% rate of return.

A.) If your sister starts making annuity payments to her savings account at the end of this year and makes her last deposit at age 62, how much must she deposit each year?

B.) Your sister mentions that she already has a savings account of $25,000. If she used that money to start the retirement account, how much must she deposit each year until she reaches age 62?

C.) She suddenly remembers that as children your parents bought both you and her a life insurance policy that matures on her 50th birthday for an amount of $50,000.If she added that to the retirement fund, along with her $25,000 (year 0) savings account, how much must she deposit each year until she reaches age 62?

Answer 1

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2 e 3 * $ 9 w XI ? v . ** 02-20 ENG 04-03-202020 CM45 CM C N CO CP CQ CR CS CT CU BA II PLUS FIRST WE WILL CALCULATE PRESENT VALUE OF ANNUITY OF 50000 N 1/Y PMT = -50000 FV CPT PV 490907.37 THE ABOVE AMOUNT WILL BECOME FUTURE VALUE FOR US NOW WE WILL CALCULATE HOW MUCH TO DEPOSIT EACH YEAR N 20 8 1/Y PV FV PMT [ANNUAL DEPOSIT] -490907.37 10727.41 ► NPV BOND Sheet4 PV FV choice EAR nper WACC Sheet1 Sheet2 Sheet3 Sheets HERO WACC AFN manua ... :

2 e 3 * $ 9 w XI ? v . 1 ENG 02-26 04-03-2020 20 X CO242 - 221 - CM Fax CN co CP Q R as CT 222 FV OF 25000 FOR 20 YEARS 225 226 N 1/Y PV PMT -25000 227 228 CPT FV 116523.93 229 230 REQUIRED AMOUNT 490907.37 232 233 SHORT FALL 374383.44 (490907.37-116523.93] 234 N 20 8 1/Y 236 237 238 239 B 240 241 242 PV FV PMT [ANNUAL DEPOSIT] -374383.44 8181.11 CPT 243 244 NPV BOND Sheet4 PV FV choice EAR nper WACC Sheet1 Sheet2 Sheet3 Sheets HERO WACC AFN manua ... :

? v ENG 02-28 04-03-2020 20 CS263 X - CM fix CN co CP co CR CS CT 242 243 244 245 ON 50TH BIRTHDAY, 50000 IS RECEIVED FUTURE VALUE OF 50000 FOR 12 YEARS 246 12 247 248 249 250 251 1/Y PV PMT -50000 CPT FV OF 50000 125908.51 252 253 FV OF 25000 116523.93 (AS CALCULATED IN B] 254 255 REQUIRED AMOUNT 490907.37 256 257 SHORT FALL 248474.94 [490907.37-116523.93- 125908.51] 258 259 260 8 1/Y PV FV 261 262 263 C 264 265 -248474.94 5429.73 CPT PMT [ANNUAL DEPOSIT] NPV BOND Sheet4 PV FV choice EAR nper WACC Sheet1 Sheet2 Sheet3 Sheets HERO WACC AFN manua ... :