How much must you deposit each year into your retirement account starting now and continuing through year 10 if you want to be able to withdraw $90,000 per year forever, beginning 27 years from now? Assume the account earns interest at 13% per year.
R= 13%
If funds of $90000 are withdrwan for perpetuity begining 27 years from now.
then,
funds required at 27 years from now= 90000/13%
$ 692307.69
Now, let annual deposits for 10 years= P
then,
692307.69= (p*[(1+i^n-1)/i]*(1+i^y-n+1)
692307.69= (p*[(1+0.13^10-1)/0.13]*(1+0.13^27-11)
692307.69= p*(23.108)*(7.067)
692307.69= p*163.304
p= 692307.69/163.304
p=4239.37
annual deposit required $4239.37
SECOND METHOD
withdrwalable ammount after 27 years= $90000
i= 13%
First we will find the perpetual stream inflow of $90000 at 13% amd then find thepresent value at the end of 10th year and the annual deposit of that ammount for 11 years ( from year 0 to year 10)
Ammount= withdrawable ammount after 27 years/i(p/f, i, 12)(a/f, 13%, 11)
Ammount= 4239.37
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