Question

Your client, Sal, wants to receive $10,000 in today’s dollars at the beginning of each of the next 4 years. Inflation will average 5% and Sal assumes he can make 8% annually after-tax. Sal would like to invest a lump sum today to fund his need. How much must he invest today to accomplish his goal?

Answer 1

D $10,000.00 In begingining of next four years 4 years 1 pmt 2 period 3 interst rate 4 inflation rate 5 real rate 8% 5% =((1+B3)/(1+B4))-1 2.86% 8 calculation of lumpsum investment today 9 value In the begingin of next year 10 value of that amount deposited today $38,363.98 $37,298.32 year present value after withdrawl after interst 0 37,298.32 37,298.32 40282.18236 38,363.98 28,363.98 30,633.10 2 29,174.38 19,174.38 20,708.33 19,722.22 9,722.22 10,500.00 10,000.00 0.00 0.00 after inflation 38363.9832 29,174.38 19,722.22 10,000.00 0.00

10000 In begingining of next four years years 1 pmt 2 period 3 interst rate 4 inflation rate 5 real rate 0.08 0.05 =((1+B3)/(1+B4))-1 =((1+B3)/(1+B4))-1 pmt 6 inter 7 8 calculation of lumpsum investment today 9 value In the begingin of next year 10 value of that amount deposited today real =PV(B6,4,-B1,,1) =+B9/(1+B6) 11 13 O 14 1 year present value =+B10 =+E13 =+E14 =+E15 =+E16 after withdrawl =+B13-0 =+B14-10000 =+15-10000 =+B16-10000 =+B17-10000 after interst after inflation =+C13*1.08 =+D13/1.05 val =+C14.1.08 =+D14/1.05 val =+C15*1.08 -+D15/1.05 =+C16*1.08 -+D16/1.05 =+C17*1.08 +017/1.05 16 17 4

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