Question

- You are currently 25 years of age. You have developed a
lifetime budget that includes $50,000 at age 40 for a college fund
for your kids and $25,000 per year for 20 years to supplement your
retirement, the first payment on your 60
^{th}birthday and the last payment on your 79^{th}birthday. You open an investment account on your 25^{th}birthday that promises to pay 9% interest compounded annually. You want to deposit equal annual amounts into the account every year on your birthday, starting today (your 25^{th}birthday) and continuing until you are 40 years old (i.e., the last deposit is made on your 40^{th}birthday). How much will each deposit have to be if you want to meet your financial goals?

I am struggling with annuity due and ordinary annuity so if you could please emphasis that within the solution.

Answer #1

25 yrs ---->--- $50,000 at age 40--->------60 yrs-->-20000/year-->--79yrs

We need 20000$ for 20 years for retirement

At 60 we required the money of....

PV for 20 yrs, 25000$ at 9%= $ 228213.64

The present value of above amount in 40yrs =

PV of $228213.64 for 20yrs (40 to 60) at 9%= 40720.36$

We need 50000 for child education at 40 yrs + 40720.36$ for retirement

50000+40720.36$= 90720$ ( Required at 40yrs old)

Future value = Periodic payment * {[(1+r)^n] - 1)/r}

pmt for 15 yrs at FV=90720$ and 9%

Periodic payment from 25th yr =**3089.82$ per
month**

You are currently 25 years of age. You have developed a lifetime
budget that includes $50,000 at age 40 for a college fund for your
kids and $25,000 per year for 20 years to supplement your
retirement, the first payment on your 60th birthday and
the last payment on your 79th birthday. You open an
investment account on your 25th birthday that promises
to pay 9% interest compounded annually. You want to deposit equal
annual amounts into the account every...

You are currently 25 years of age. You have developed a
lifetime budget that includes $50,000 at age 40 for a college fund
for your kids and $25,000 per year for 20 years to supplement your
retirement, the first payment on your 60th birthday and
the last payment on your 79th birthday. You open an
investment account on your 25th birthday that promises
to pay 9% interest compounded annually. You want to deposit equal
annual amounts into the account every...

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