Question

Suppose your friend’s employer will contribute to the account each year as part of the company’s profit sharing plan. In addition, your friend expects a distribution from a family trust 20 years from now. What amount must she deposit annually now to be able to make the desired withdrawals at retirement? Employer’s annual contribution $1,500 Years until trust fund distribution 20 Amount of trust fund distribution $25,000

Answer 1

Answer:

$6618 annual payment

Explanation:

Employer's annual contribution = $1500 until trust fund distribution

trust fund distribution = $25000

years to trust fund distribution = 20 years

To calculate the amount she must deposit to make up the amount ( future required amount ) she will pay the difference between the required value and the contribution from her employer + trust fund distribution

future value = 1500 FVIFA(8%,30) + 2500 FVIFA( 8%,10)

                      = 169924( 1500*113.28) + 53973 = 223897

therefore the required total of what she should deposit = 973633 - 223897 = 749735

the amount she must deposit annually is calculated as

749735 ( total payment ) = annuity * FVIFA(8%,30 )

ANNUITY =  749735 / 113.28

                = $6618

NOTE : FVIFA (8%,30) and FVIFA( 8%,10) values are gotten from the FVIFA table