Question

A couple saves $500.00 per month (end of month) for 40.00 years. They can earn 6.00%...

A couple saves $500.00 per month (end of month) for 40.00 years. They can earn 6.00% annual interest with monthly compounding on this account. The couple wants their retirement account to last for 25.00 years. When they retire, they will move their savings into a money market fund that pays 2.40% annual interest with monthly compounding.

What is the value of this account when they retire?

Assuming they withdraw at the beginning of the month, what monthly withdrawals will this account support?

Homework Answers

Answer #1

This question requires application of concept of annuities.

FV of annuity deposits made by couple can be calculated using the formula:

n = 40*12 months = 480 months, r = 6%/12 = 0.5% (monthly)

FV = $955,745.37--> Value of account at retirement

This would now be the present value of annuity of withdrawals that will take place for 25 years (25 * 12 = 300 months) at rate of 2.4% (=2.4%/12 = 0.2% monthly rate)

P = $4,417.10 --> Monthly payment that they can withdraw during retirement

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
A couple saves $500.00 per month (end of month) for 40.00 years. They can earn 6.00%...
A couple saves $500.00 per month (end of month) for 40.00 years. They can earn 6.00% annual interest with monthly compounding on this account. The couple wants their retirement account to last for 25.00 years. When they retire, they will move their savings into a money market fund that pays 2.40% annual interest with monthly compounding. What is the value of this account when they retire?
Toby wants to buy a dirt bike in 5 years. If he saves $700 per month,...
Toby wants to buy a dirt bike in 5 years. If he saves $700 per month, what is the purchase price of the bike that he can afford in 5 years if he can receive an annual nominal interest rate of 3% compounding monthly in to a savings account?
You want to withdraw $8,500 per month in real terms for 25 years when you retire....
You want to withdraw $8,500 per month in real terms for 25 years when you retire. You plan to retire in 35 years, and expect to earn an 11 percent nominal effective annual return before you retire. You will make monthly deposits to fund your retirement account. Immediately after you make your last deposit, you plan to withdraw $35,000 in real terms to take an around the world trip. You also wish to leave your grandchildren $750,000 in real terms...
A couple is saving for retirement with three different accounts. The table below shows the current...
A couple is saving for retirement with three different accounts. The table below shows the current balances in their accounts, along with their yearly contribution, and the yearly return on each account. The couple will retire in 24.00 years and pool the money into a savings account that pays 4.00% APR. They plan on living for 29.00 more years and making their yearly withdrawals at the beginning of the year. What will be their yearly withdrawal? Account Balance Yearly Contribution...
A couple is saving for retirement with three different accounts. The table below shows the current...
A couple is saving for retirement with three different accounts. The table below shows the current balances in their accounts, along with their yearly contribution, and the yearly return on each account. The couple will retire in 24.00 years and pool the money into a savings account that pays 3.00% APR. They plan on living for 28.00 more years and making their yearly withdrawals at the beginning of the year. What will be their yearly withdrawal? Account Balance Yearly Contribution...
A man aged 30 deposits $600 at the end of each month for 35 years into...
A man aged 30 deposits $600 at the end of each month for 35 years into a registered retirement savings account fund paying interest at 3% compounded annually. Starting on his 65th birthday, he makes 120 equal monthly withdrawals from the fund at the beginning of each month. During this period, the fund pays interest at 6% compounded annually. Calculate the amount of each withdrawal (annuity payment). A timeline may assist you in solving this calculation.
A man aged 30 deposits $500 at the end of each month for 35 years into...
A man aged 30 deposits $500 at the end of each month for 35 years into a registered retirement savings account fund paying interest at 4% compounded annually. Starting on his 65th birthday, he makes 120 equal monthly withdrawals from the fund at the beginning of each month. During this period, the fund pays interest at 7% compounded annually. Calculate the amount of each withdrawal (annuity payment). A timeline may assist you in solving this calculation. (10 points)
Sof ́ıa saves money for retirement. She deposits $150 on the first day of every month...
Sof ́ıa saves money for retirement. She deposits $150 on the first day of every month (starting today) for 30 years in a saving account. Altogether, 360 investments. She plans to retire after 30 years and from that time on she does not invest money anymore, and rather she plans to withdraw a fixed amount of money $Q every month (starting on the first day of the 361st month) for 40 years. Altogether, 480 withdrawals. Assume that the annual interest...
Case narrative: A young couple, both 25 years old, are planning to retire in 40 years...
Case narrative: A young couple, both 25 years old, are planning to retire in 40 years at the age of 65. After they retire, they expect to live for an additional 20 years, until age 85. They plan to begin saving for retirement today and based on information from their financial planner, they think they will earn 8% on their investment compounded annually. They think they will earn 5% on their retirement savings after they retire. Question #1 answer: $1,295,283...
You just decided to begin saving for retirement. You will make deposits of $1,000 per month...
You just decided to begin saving for retirement. You will make deposits of $1,000 per month into a retirement account that earns 8.00% p.a. The first deposit is made today and the last deposit will be made when you retire exactly 30 years from today. The day you retire you will buy an RV for $240,000. You will begin to make withdrawals from the account the first month after you retire. If you plan to live an addition 25 years,...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT