You have finished your time at Kelley and need to start thinking about retirement. You plan on working for 20 more years and then retire. Upon your retirement 20 years from today, you plan to have enough money to withdraw $10,000 per month, with the first payment coming exactly one month after your retirement day. You expect your retirement account to earn a return of 8% APR (stated rate), compounded monthly, on all funds in the retirement account. Assuming you want to draw on the retirement fund for 25 years after your retirement (300 monthly payments), calculate the following:
a) How much would you need to invest in the account TODAY to cover the planned withdrawals?
b) Alternatively, how much money would you need to invest in the account annually, with the first payment being made today and the last payment occurring one year prior to the day of your retirement (20 total payments into the retirement account) to cover the planned withdrawals?
Assuming Compounding annually
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