Answer:
<u>Mario:</u>
we must first calculate the present value of Mario's distributions when he retires:
present value = monthly distribution x annuity factor
- monthly distribution = 4,000
- PV annuity factor, 300 periods, 0.333% = 189.53178
present value = 4,000 x 189.53178 = $758,127.12
he will make 45 years of contributions to his IRA, which totals 540 monthly contributions
we are not told if the interest rate is effective or not, and how often is interest compounded, so I will just divide it by 12 to calculate the monthly interest rate (same as before) = 0.583333%
the future value of Mario's contributions = monthly contribution x annuity factor
future value = $758,127.12
FV annuity factor, 540 periods, 0.583333% = 3,792.58975
monthly contribution = $758,127.12 / 3,792.58975 = <u>$199.90</u>
<u>Mario's dad:</u>
present value of the annuity when he is 65 = $758,127.12 (same as Mario's)
the future value of his contributions = monthly contribution x annuity factor
future value = $758,127.12
FV annuity factor, 300 periods, 0.583333% = 810.07118
monthly contribution = $758,127.12 / 810.07118 = <u>$935.88</u>
