Question

John executive VP contemplating retirement on his sixty fifth birthday, decides to create a fund on a 6% basis that will enable him to withdraw $90,000 per year on July 31, beginning in 2022 and continuing through 2026. To develop this fund, John intends to make equal contributions on July 31 of each of the year 2017-2021.

1. compute how much the balance of the fund must equal on July 31, 2021, in order for John to satisfy his objective.

2. compute the amount of John contributions to the fund

Answer 1

Answer:-

(1) Calculation of balance of the fund must equal on July 31,2021, in order for john to satify his objectives are as follows:-

(a) Present value of annuity for 5 yrs of 6%=4.2124

(b) Withdrawal per year = $90,000

(a) * (b) = 4.2124 * $90,000= $3,79,116.00

(2) Computation of Amt of Joun Contribution to the fund are as follows:-

(a) Fund on July 31,2021 = $3,79,116.00

(b) Futurre value of the Annuity 6% for 5 years = 5.6371

(a) / (b) = $3,79,116.00/5.6371

= $67,253.73