Question

A person thinks that he will be able to retire within 25 years. You have decided...

A person thinks that he will be able to retire within 25 years. You have decided to deposit an equal amount every 3 months, until the time of your retirement, so that you can withdraw quarterly payments for 20 years. The first of these quarterly withdrawals will be $ 1,000, and given the increase in the cost of living, you want to increase these withdrawals by $ 250 per quarter. What amount should you deposit if you are assured of 12% interest? Draw flow diagram.

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Answer #1

Let quaterly deposits be A,

Quarterly interest rate = 12%/4 = 3%

No of deposits = 25*4 = 100

No. of withdrawals = 20*4 = 80

Now.

Future value of deposits after 25 years = Present value of withdrawls for 20 years

A* (F/A,3%,100) = 1000*(P/A,3%,80) + 250*(P/G,3%,80)

A* 607.287732 = 1000*30.20076 + 250*756.08652

A = 360.99

Cash Flow diagram

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