Question

Your grandparents are talking about their retirement in a year. They told you that they should have enough in their retirement funds to pull $50,000 a year for 20 years, starting one year from today. If the discount rate is 5 percent, how much should they have in their retirement account now? Round to the nearest cent. Do not include any unit (If your answer is $111.11, then type 111.11 without $ sign.)

Answer 1

Answer:

Present value of annuity = 623,110.5  

Explanation:

To determine present value of annuity of $50,000.

Annuity is fixed series of cash flows for a definite time period.

present value of money at the time retirement is

Present value of annuity =$Annuity * \frac{[1 - \frac{1 }{( 1 + r)^{n}}]}{r}$

where,

n of year of payment left to receive

r =rate of interest

Present value of annuity =$50,000 \times \frac{[ 1 - \frac{1}{( 1 + 0.05)^{20}}]}{0.05}$

Present value of annuity = 50,000 * 12.46221

Present value of annuity = 623,110.5