Question

Required Annuity Payments Assume that your father is now 50 years old, plans to retire in...

Required Annuity Payments

Assume that your father is now 50 years old, plans to retire in 10 years, and expects to live for 25 years after he retires - that is, until age 85. He wants his first retirement payment to have the same purchasing power at the time he retires as $40,000 has today. He wants all of his subsequent retirement payments to be equal to his first retirement payment. (Do not let the retirement payments grow with inflation: Your father realizes that if inflation occurs the real value of his retirement income will decline year by year after he retires). His retirement income will begin the day he retires, 10 years from today, and he will then receive 24 additional annual payments. Inflation is expected to be 5% per year from today forward. He currently has $150,000 saved and expects to earn a return on his savings of 9% per year with annual compounding. To the nearest dollar, how much must he save during each of the next 10 years (with equal deposits being made at the end of each year, beginning a year from today) to meet his retirement goal? (Note: Neither the amount he saves nor the amount he withdraws upon retirement is a growing annuity.) Do not round intermediate steps.

$  

Homework Answers

Answer #1

Amount of first payment after retirement = 40,000*(1.05)^10 = $65,155.79

Total amount required on the day of retirement is equal to the present value of future funds required

= 65,155.79 + 65,155.79*PVAF(9%, 24 periods)

= 65,155.79 + 65,155.79*9.7066117

= $697,597.75

Amount at the retirement from current savings = 150,000*(1.09)^10 = $355,104.55

Additional amount required = $342,493.2

Let the amount deposited each year be X

X*[{(1+0.09)^10-1}/0.09] = 342,493.2

15.1929297x = 342,493.2

X = $22,542.93

Hence, amount required to be saved each year = $22,542.93

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
Assume that your father is now 50 years old, plans to retire in 10 years, and...
Assume that your father is now 50 years old, plans to retire in 10 years, and expects to live for 25 years after he retires - that is, until age 85. He wants his first retirement payment to have the same purchasing power at the time he retires as $40,000 has today. He wants all his subsequent retirement payments to be equal to his first retirement payment. (Do not let the retirement payments grow with inflation: Your father realizes that...
Problem 4-33 Required Annuity Payments Assume that your father is now 50 years old, that he...
Problem 4-33 Required Annuity Payments Assume that your father is now 50 years old, that he plans to retire in 10 years, and that he expects to live for 25 years after he retires - that is, until he is 85. He wants his first retirement payment to have the same purchasing power at the time he retires as $50,000 has today. He wants all his subsequent retirement payments to be equal to his first retirement payment. (Do not let...
Problem 4-33 Required Annuity Payments Assume that your father is now 50 years old, that he...
Problem 4-33 Required Annuity Payments Assume that your father is now 50 years old, that he plans to retire in 10 years, and that he expects to live for 25 years after he retires - that is, until he is 85. He wants his first retirement payment to have the same purchasing power at the time he retires as $50,000 has today. He wants all his subsequent retirement payments to be equal to his first retirement payment. (Do not let...
Your father is 50 years old and will retire in 10 years. He expects to live...
Your father is 50 years old and will retire in 10 years. He expects to live for 25 years after he retires, until he is 85. He wants a fixed retirement income that has the same purchasing power at the time he retires as $60,000 has today. (The real value of his retirement income will decline annually after he retires.) His retirement income will begin the day he retires, 10 years from today, at which time he will receive 24...
Your father is 50 years old and will retire in 10 years. He expects to live...
Your father is 50 years old and will retire in 10 years. He expects to live for 25 years after he retires, until he is 85. He wants a fixed retirement income that has the same purchasing power at the time he retires as $40,000 has today. (The real value of his retirement income will decline annually after he retires.) His retirement income will begin the day he retires, 10 years from today, at which time he will receive 24...
Your father is 50 years old and will retire in 10 years. He expects to live...
Your father is 50 years old and will retire in 10 years. He expects to live for 25 years after he retires, until he is 85. He wants a fixed retirement income that has the same purchasing power at the time he retires as $40,000 has today. (The real value of his retirement income will decline annually after he retires.) His retirement income will begin the day he retires, 10 years from today, at which time he will receive 24...
Your father is 50 years old and will retire in 10 years. He expects to live...
Your father is 50 years old and will retire in 10 years. He expects to live for 25 years after he retires, until he is 85. He wants a fixed retirement income that has the same purchasing power at the time he retires as $45,000 has today. (The real value of his retirement income will decline annually after he retires.) His retirement income will begin the day he retires, 10 years from today, at which time he will receive 24...
Assume that your brother is now 50 years old, that he plans to retire in 10...
Assume that your brother is now 50 years old, that he plans to retire in 10 years, and that he expects to live for 25 years after he retires (i.e. until he is 85 years old). He wants a fixed retirement income that has the same purchasing power at the time he retires as $50,000 has today (he realizes that the real value of his retirement income will decline year by year after he retires). His retirement income will begin...
Your father is 50 years old and will retire in 10 years. He expects to live...
Your father is 50 years old and will retire in 10 years. He expects to live for 25 years after he retires, until he is 85. He wants a fixed retirement income that has the same purchasing power at the time he retires as $60,000 has today. (The real value of his retirement income will decline annually after he retires.) His retirement income will begin the day he retires, 10 years from today, at which time he will receive 24...
Your father is 50 years old and will retire in 10 years. He expects to live...
Your father is 50 years old and will retire in 10 years. He expects to live for 25 years after he retires, until he is 85. He wants a fixed retirement income that has the same purchasing power at the time he retires as $55,000 has today. (The real value of his retirement income will decline annually after he retires.) His retirement income will begin the day he retires, 10 years from today, at which time he will receive 24...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT