Question

Mr. Moore is 35 years old today and is beginning to plan for his retirement. He wants to set aside an equal amount at the end of each of the next 25 years so that he can retire at age 60. He expects to live to the maximum age of 80 and wants to be able to withdraw $25,000 per year from the account on his 61st through 80th birthdays. The account is expected to earn 10 percent per annum for the entire period of time. Determine the size of the annual deposits that must be made by Mr. Moore.

Answer 1

Answer:

c = 2164.16

Explanation:

GIVEN DATA:

Cash Flow= 25000

Interest rate= 10%

Total Periods= 80 - 60= 20 years

PV Ordinary Annuity$= C\times (\frac{(1-(1+i)^{-n})}{i})$

$PV = 25000\times (\frac{(1-(1+0.10)^{-20})}{0.10}) = 212839.09$

Annuity to be paid from 35 age to 60 age for amount of 212839.09

No of Periods =  60 - 35 = 25 years

Future Value = 212839.09

Interest rate = 10%

FV Ordinary Annuity $= C\times (\frac{(((1+i)^n)-1)}{i})$

$212839.09 = c \times \frac{(1+0.10)^{25} - 1}{0.10}$

c = 2164.16