Question

1) Suppose you wish to retire 35 years from today. You determined that you will need $250,000 per year after you retire, with the first retirement funds withdrawn one year from the day you retire and that you will need to make 28 such withdrawals. Assuming that you can earn 5% per year on your retirement funds. a) How much must you deposit in an account today (lump sum), so that you may have enough funds for retirement? b) If you cannot afford to make a single lump sum deposit, today, to support your retirement. How much must you deposit at the end of each year for the next 35 years so that you have enough funds for your desire retirement? Assuming the last deposit will be made on the day you retire.

Answer 1

Answer:

Instructions are listed below

Explanation:

Giving the following information:

Suppose you wish to retire 35 years from today.

You determined that you will need $250,000 per year after you retire.

You will need to make 28 withdrawals.

You can earn 5% per year on your retirement funds.

Final value= 250000*28= $7,000,000

i= 0.05

n=35

A) We need to find the present value of the 7 million:

PV= FV/(1+i)^n

PV= 7,000,000/(1.05^35)= $1,269,032

B) We need to find the annual payment to reach the final value.

FV= {A*[(1+i)^n-1]}/i

A= annual payment

isolating A:

A= (FV*i)/{[(1+i)^n]-1}

A= (7000000*0.05)/[(1.05^35)-1]

A= $77501.95