Question

Today is Derek’s 25th birthday. Derek has been advised that he needs to have $2,570,420.00 in his retirement account the day he turns 65. He estimates his retirement account will pay 5.00% interest. Assume he chooses not to deposit anything today. Rather he chooses to make annual deposits into the retirement account starting on his 30.00th birthday and ending on his 65th birthday. How much must those deposits be?

Answer #1

Total deposits = 65 -30 = 35 | ||

We can calculate annual deposit amount by using following formula | ||

Future Value of an Ordinary Annuity | ||

c= Cash Flow | C | |

i= Interest Rate | 5.00% | |

n= Number Of Periods | 35 | |

Future Value of an Ordinary Annuity | ||

= C*[(1+i)^n-1]/i | ||

Where, | ||

C= Cash Flow per period | ||

i = interest rate per period | ||

n=number of period | ||

2570420= C[ (1+0.05)^35 -1] /0.05 | ||

2570420= C[ (1.05)^35 -1] /0.05 | ||

2570420= C[ (5.516 -1] /0.05] | ||

C = 28458.94 | ||

Annual Deposit = $28458.94 |

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Answer in currency and round to 2 decimal places please! :)

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Category
Prior Year
Current Year
Accounts payable
3,119.00
5,956.00
Accounts receivable
6,975.00
8,909.00
Accruals
5,779.00
6,033.00
Additional paid in capital
19,546.00
13,016.00
Cash
???
???
Common Stock
2,850
2,850
COGS
22,805.00
18,431.00
Current portion long-term debt
500
500
Depreciation expense
1,049.00
1,025.00
Interest expense
1,262.00
1,122.00
Inventories
3,074.00
6,738.00
Long-term debt
16,942.00
22,407.00
Net fixed assets
75,935.00
73,976.00
Notes payable
4,021.00
6,509.00
Operating expenses (excl. depr.)
19,950
20,000
Retained earnings
35,600.00
34,487.00
Sales
46,360
45,961.00
Taxes
350
920
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