Question

Question 13

Imagine today is your 68th birthday and you decide to retire as of tomorrow morning. You have an annuity that pays you $80,000 per year for as long as you live after retirement, but the payments are not adjusted upward each year to reflect any inflation. If inflation can be expected to average 6% per year, use the rule of 72 to determine how old you will be when the purchasing power of your annuity will have been cut in half,, that is, to the equivalent of only $40,000 today:

72 years old

76 years old

80 years old

84 years old

88 years old

Question 14

Imagine that you have figured out that you will need to save $1.21 million before you can comfortably retire. If you want to be able to retire in 40 years and if you can earn a 5% return on your retirement account investments, how much money do you have to put into the account each year to reach your savings goal?

$10,000

$13,000

$16,000

$19,000

$22,000

Question 15

Suppose you are 70 years old and have saved up $1.4 million for your retirement. If you can earn 4% interest on any unspent portion of your retirement account, for how many years can you withdraw $100,000 before your account is fully depleted?

15

17

19

21

23

Answer 1

Q13. It should be 80 years of age. This is because rule of 72 can detect the doubling time of half time using rate of interest. Here inflation is 6% so approximate half time is 72/6 = 12 years from now which is 68 + 12 = 80 years.

Q14 Future amount = 1.21 million Annual deposits = 1.21(F/A, 5%, 40) = 1.21*120.7998 = $10017 which is approximately $10000

Q15. We need to find N so that 100000 = 1.4*1000000(P/A, 4%, N)

For N = 19, We get an annual amount of 106,594. For N = 21, annual amount is 99792. Closest option is 21.