Question

1. Today is your 25th birthday and you have a dream of retiring on your 65thbirthday. You want to put aside however much is necessary on your 31st through 65th birthdays (35annual payments) to have enough to retire. You've estimated that you will live until you are 90 and you want the first withdrawal to occur on your 66thbirthday, with the last payment occurring on your 90thbirthday. You think that you will need $175,000 per year to spend during retirement. You estimate constant interest rates of 10.25%. Assuming that you currently have $10,000deposited in your retirement account, how much must you put aside each year in order to have sufficient money to retire at age 65.

2. For $1,000 Laura Croft can purchase a 5-year ordinary annuity which will pay her a yearly payment of $263.80 for 5 years. What is the annual interest rate implicit in this investment? Round your answer to the nearest tenth?

3. Clementine and Lee expect to deposit the following cash flows at the end of years 1 through 5, $1,000; $4,000; $9,000; $5,000; and $2,000 respectively. Alternatively, they could deposit a single amount today and have the same amount in your account at the end of year 5. How large does the single deposit need to be today if Clementine and Lee can earn 10% compounded annually on their account

Answer 1

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