Question

5. You deposit $12,000 annually into a life insurance fund for the next 30 years, after which time you plan to retire. (LG 15-2) a. If the deposits are made at the beginning of the year and earn an interest rate of 7 percent, what will be the amount of retirement funds at the end of year 30? b. Instead of a lump sum, you wish to receive annuities for the next 20 years (years 31 through 50). What is the constant annual payment you expect to receive at the beginning of each year if you assume an interest rate of 7 percent during the distribution period? c. Repeat parts (a) and (b) assuming earning rates of 6 percent and 8 percent during the deposit period and earning rates of 6 percent and 8 percent during the dis- tribution period. During which period does the change in the earning rate have the greatest impact?

Answer 1

a	Amount at the end of year 30	$1,212,876.50
b	Annual payment	$106,997.16
c	At 6%
	Amount at the end of year 30	$1,005,620.13
	Annual payment	$82,711.84
	At 8%
	Amount at the end of year 30	$1,468,150.42
	Annual payment	$138,457.74

Workings

off H D Book1- Excel Sign in AutoSave O Tell me what you want to do Comme File View Help Share Home Insert Draw Page Layout Formulas Data Review Σ. Insert = = A A А A' General Calibri 11 XDelete Sort & Find& Filter Select Conditional Format as Cell Paste BI U в IU- A- 0 00 Format Formatting Table Styles Styles Clipboard Font Alignment Number Cells Editing fx Amount at the end of year 30 B2 A B C D E F Amount at the end of year 30 FV(7%,30,-12000,1) 2 a 3 PMT(7 %,20,-C2,1) Annual payment 4 b At 6% 6 C =FV(6%,30,-12000,,1) -РMT(6%, 20,-С7,1) Amount at the end of year 30 7 Annual payment 8 9 At 8% 10 Amount at the end of year 30 =FV(8%,30,-12000,1) =PMT(8%,20,-C11,1) 11 Annual payment 12 13 14 15 16 17