Question

11. A guy is saving $2500 a year for retirement (end of year) and plans to retire in 20 years. If he is planning for a 25 year retirement, what payments (end of year) can he expect to receive during his 25 year retirement if his investments are earning 10% over his

entire life?

A. $15,582

B. $15,426

C. $16,620

D. $17,576

E. $15,775

Answer 1

The question is solved by first calculating the value saved for 20 years.

Enter the below in a financial calculator to calculate the future value:

PMT= 2,500

N= 20

I/Y= 10

Press the CPT key and FV to compute the future value.

The value obtained is 143,187.50.

Hence, the value saved for retirement is $143,187.50.

Next, the payment received every year of retirement is calculated.

Enter the below in a financial calculator to calculate the annual payment received during retirement:

PV= -143,187.50

N= 25

I/Y= 10

Press the CPT key and FV to compute the future value.

The value obtained is 15,774.69.

Therefore, the payment received every year of retirement is $15,774.69$15,775.

Hence, the answer is option e.

In case of any query, kindly comment on the solution.