Question

In one of the retirement articles we discussed in class, it is mentioned that with an average value of $149,400 in their 401(k) accounts, retiring baby boomers can only withdraw $9,073 each year to support their retirement. If we assume the average life-span in retirement is 25 years, we can calculate and find out that a 3.5% yearly interest rate assumption is used in this article’s calculation. (a) Please indicate which Time Value of Money formula (single cash flow; PV of annuity; FV of annuity; or Perpetuity) has been used to find the 3.5% rate. (b) Please indicate whether the 3.5% rate assumption used in the article’s calculation is realistic and why you think so

Answer 1