Question

You are a financial adviser working with a client who wants to retire in eight years. The client has a savings account with a local bank that pays 8% annual interest. The client wants to deposit an amount that will provide her with $1,002,000 when she retires. Currently, she has $300,800 in the account. (FV of $1. PV of $1, EVA of $1, and PVA of $1 (Use the appropriate factor(s) from the tables provided.) How much additional money should she deposit now to provide her with $1,002,000 when she retires? (Round your answer to nearest whole dollar.) Additional deposit amount

Answer 1

(1): Let the amount needed now = x. n = 8 years and r = 8%. From the table we can see that future value of $ 1 at 8% and for 8 years = 1.85093 (I have used FV of $1)

Thus x*1.85093 = 1,002,000

Or x = 1,002,000/1.85093 = $541,349.48

Thus additional deposit amount = $541,349.48 - $300,800

= $240,549

(2): This is an annuity with an amount of $21,800, n = 4 years and r = 9%. We will use PVA of $1 table. So from the table we can see that PVA of %1 at n = 4 and r = 9% will be 3.23972

Thus amount to be deposited today = 21800*3.23972

= $70,626