Question

Please show all of the factors used in the calculation – PV, I/Y, N, etc. – NOT just the answer.

If the calculation involves an annuity, please indicate if it is an ordinary annuity or an annuity due. a. On January 1, 2019 Tom Jeffers come to you, his CPA, and tells you he wants to retire in 10 years. His life expectancy is 20 years from his retirement. How much should he deposit on December 31, 2028 to be able to withdraw $3,000 at the beginning of each month for the next 20 years, assuming the amount on deposit will earn 4% interest compounded monthly? b. For a possible bonus point, if he begins to save now, how much would he have to deposit at the end of each month in order to have that amount when he retires assuming he can now earn 5% compounded monthly?

Answer 1

a)
PMT	$    3,000.00
I/y = 4%/12 months	0.33%
N = 20 x 12 months	240
Type (annuity due)	1
FV	0
PV =  Deposit on December 31, 2028	$496,715.79
b)
FV	$496,715.79
I/y = 5%/12 months	0.42%
N = 10 x 12 months	120
Type (annuity ordinary)	0
PV	0
Deposit at the end of each month	$3,198.79