Question

You plan to retire in 24 years. You would like to maintain your current level of consumption which is $55,235 per year. You will need to have 23 years of consumption during your retirement. You can earn 5.25% per year (nominal terms) on your investments. In addition, you expect inflation to be 2.28% inflation per year, from now and through your retirement. How much do you have to invest each year, starting next year, for 7 years, in nominal terms to just cover your retirement needs?

Answer 1

Andweg Pageno Real Rate of Return 1+ Nominal Rotwin) (it inflation) ) (1+0.0525) (1+0.0228) 1 1-osas - 1.0228 = 1.029037935-1 = 0.029037935 = 2.90% The value, se quised at the beginning Poulent voles of Annuity of the retirement Present value of Annuity - Periodic Cash ( Citron flow Here or=2.90% . n=2 23 years 1 55235 x (1+0029023 0.0290

Payrola =55235 X 16.61589255 = 914 478.825 914778.82 The amount is required in auyearl beit we are only investing for t 4 yearl These foore value of 914778.82 afteo + years future value C (toon from today 8a = 0.0290 n =(au - +) = 17 years - 914778.82 Ci+0.0290)14 = 911778.82 - 615067.5066 1.492159695 = 615064.51 I Now 615067.51 iş ouequired after 7 years

Pageno The feature value of annuity 6150 67.51 - Peariodic payment (1+r)n- -1 X 8 r=0,0290 n=7 6 15067.SI 0.0290 615067.51 (1+0.029017-1 Periodic payment * Periodic payment x 7.639303612 Periodic pay mont = 80513.56 we need to deposit (30513-56 every year foon + years