Question

ne that you plan to retire 40 years from now and ou expect to need $2M to support the lifestyle Assume that you plan that you
1 0
Add a comment Improve this question Transcribed image text
Answer #1

a)

If you plan to retire in 40 years, the annual deposit to be made to reach the retirement goal of $ 2 million is calculated as follows.

Al (1+r)-1] Future value annuity =

$2,000,000 = A[(1 + 0.10) 40 - 1] 0.10

A = $ 4,518.83

Waiting for 5 years to start the savings, the annual deposit to be made is calculated as below

$2,000,000 = A[(1 + 0.10) 35 – 1] 0.10

A = $7,379.41

If 5 years is waited to start the savings, the required multiplier is

$7,379.41 Multiplier = S 4.518.83

Multiplier = 1.63

Hence it is not true that waiting for 5 years to start the savings doubles what must be deposited each year.

----------------------------------------------------------------------------------------------------------------

b)

If the interest rate is 12%, the annual deposit to be made to reach the retirement goal of $ 2 million is calculated as follows.

$2,000,000 = A[(1 +0.12) 40 - 1] 0.12

Annual deposit = $2,607.25

Waiting for 5 years to start the savings, the annual deposit to be made is calculated as below

$2,000,000 = A[(1 + 0.12) 35 - 1] 0.12

Annual deposit = $4,633.24

If 5 years is waited to start the savings, the required multiplier is

Multiplier = $4633.24 $267.25

Multiplier = 1.78

At a rate of 12%, the required multiplier is higher than for the 10% rate.

-------------------------------------------------------------------------------------------------------

c)

Thus at an interest rate of 12%, the following statement is approximately true that " waiting 5 years to start saving doubles what you must deposit each year".

Add a comment
Know the answer?
Add Answer to:
ne that you plan to retire 40 years from now and ou expect to need $2M...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions
  • Create an excel solution for this problem and show steps. Assume that you plan to retire...

    Create an excel solution for this problem and show steps. Assume that you plan to retire 40 years from now and that you expect to need $2million to support the lifestyle that you want. a) if the interest rate is 10%, is the following statement approximetly true? "waiting 5 years to start saving doubles what you must deposit each year." b) if the interest rate is 12%, is the required multiplier higher or lower than for the 10% rate in...

  • Question 18 (3.5 points) You plan to retire 33 years from now. You expect that you...

    Question 18 (3.5 points) You plan to retire 33 years from now. You expect that you will live 29 years after retiring. You want to have enough money upon reaching retirement age to withdraw $150,000 from the account at the beginning of each year you expect to live, and yet still have $2,300,000 left in the account at the time of your expected death (62 years from now). You plan to accumulate the retirement fund by making equal annual deposits...

  • You plan to retire in 30 years and plan on saving $15,000 annually, starting next year,...

    You plan to retire in 30 years and plan on saving $15,000 annually, starting next year, for the next 30 years. You expect to need $120,000 about 18 years from now for college tuition for your recently born daughter which must be paid out of these savings. You expect to live 35 years during retirement (the first retirement payment will be 31 years from today). 1. If you assume an interest rate of 8.15% over the entire period, how much...

  • Homework Question for Time value of money You plan to retire in 30 years and plan...

    Homework Question for Time value of money You plan to retire in 30 years and plan on saving $15,000 annually, starting next year, for the next 30 years. You expect to need $120,000 about 18 years from now for college tuition for your recently born daughter which must be paid out of these savings. You expect to live 35 years during retirement (the first retirement payment will be 31 years from today). a. If you assume an interest rate of...

  • Ou deposit $10,900 annually into a life insurance fund for the next 10 years, at which time you p...

    ou deposit $10,900 annually into a life insurance fund for the next 10 years, at which time you plan to retire. Instead of a lump sum, you wish to receive annuities for the next 20 years. What is the annual payment you expect to receive beginning in year 11 if you assume an interest rate of 5 percent for the whole time period?

  • Determine the size of your investment account 21 years from now (when you plan to retire)...

    Determine the size of your investment account 21 years from now (when you plan to retire) if you deposit $8,000 each year, beginning 1 year from now, and the account earns interest at a rate of 6% per year. The size of the investment account is $

  • You have just turned 40 and you plan to save for retirement. You plan to retire...

    You have just turned 40 and you plan to save for retirement. You plan to retire in 20 years. Once you retire you would like to have an income of $80,000 per year for the next 10 years. Determine the amount you must deposit at the beginning of each year to finance your retirement income. Use the following assumptions to determine this annual deposit: All savings compound at a rate of 12% per year. You make the first deposit today...

  • You plan to retire at age 65, you are 30 years old; and you wish to...

    You plan to retire at age 65, you are 30 years old; and you wish to save for an annuity, which will payout $50,000 a year for 20 years when you retire. Approximately, how much should you start saving annually for retirement; given a rate of 5% for the annuity and the same rate for your savings investment fund? A.$6,898.90 B.$9,064.99 C.$6,894.89

  • You want to withdraw $11,200 per month for 30 years when you retire, then you expect...

    You want to withdraw $11,200 per month for 30 years when you retire, then you expect to pass on. You plan to retire in 40 years, and expect to earn a return of 11.2 percent until then. You will make monthly deposits to fund your retirement account. Immediately after you make your last deposit, you plan to withdraw $80,000 to take an around the world trip. You also wish to leave your grandchildren $1,200,000 when you pass on. You will...

  • 1. You want $6,000 per month in your retirement. You expect to retire 40 years from...

    1. You want $6,000 per month in your retirement. You expect to retire 40 years from today. At the time you retire, you want the payments to be at the beginning of the month and want them to last 30 years or 360 months. You expect an annual interest rate of 5% during retirement. You need to save to obtain this retirement. How much per month at the end of each month do you need to save for the next...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT