Question

2. Your sister turned 25 today, and she is planning to save $3,500 per year for retirement, with the first deposit to be made one year from today. She will invest in a mutual fund that's expected to provide a return of 7% per year. She plans to retire 40 years from today, when she turns 65, and she expects to live for 25 years after retirement, to age 90. Under these assumptions, how much can she spend each year after she retires? Her first withdrawal will be made at the end of her first retirement year and she will earn 7% per year.

Answer 1

A/c balance after 65 years Px[(1+r)^n-1]=r Here, 7% 40 A Interest rate per annum B Number of years C|Number of payments per per annum A:C Interest rate per period (r) BxC Number of periods (n) Payment per period (P) 1 7% 40 3,500 A/c balance after 65 years 698,722.89 3500x((1+7%)^40-1):7%

Withdaw in each year (P) PVA:([1-(1=(1+r)^n)]=r) Here, 7% 25 1 A Interest rate per annum B Number of years C Number of compoundings per per annum A:C Interest rate per period (r) BxC Number of periods (n) Present value (PVA) 7% 25 698,722.89 Withdaw in each year (P) $ 59,957.77 698722.892:((1-(1:(1+7%)^25)):7%)

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