Purchase Solution

Annual savings plan payment

Not what you're looking for?

Ask Custom Question

I have done Chapter 4, Question 64 from Brealey-Myers-Marcus, Fundamentals of Corporate Finance.

The only thing is that I have worked out question 64b, but I am unsure to which of my methods is the correct way to be doing this.

Here is the question:

A couple will retire in 50 years; they plan to spend about $30,000 a year in retirement, which should last 25 years. They believe that they can earn 8% interest per annum on retirement savings.

(a) if they make annual payments into a savings plan, how much will they need to save each year?
(b) how would the answer for part (a) change if they couple also realise that in 20 years, they will need to spend $60,000 on their child's college education.

I have attached my workings for Part (a) along with part (b) method 1 and method 2.

Could someone please advise which method is correct and why that method is correct, so that I can gain a better understanding.

Purchase this Solution
Solution Summary

This solution is comprised of a detailed explanation to calculate the annual savings plan payment.

Solution Preview

Please find my response below.

Thanks for using BrainMass.com. Have a great day.

Kao-wen Peng

A couple will retire in 50 years; they plan to spend about $30,000 a year in retirement, which should last 25 years. They believe that they can ...

Purchase this Solution
Free BrainMass Quizzes
Production and cost theory

Understanding production and cost phenomena will permit firms to make wise decisions concerning output volume.

Introduction to Finance

This quiz test introductory finance topics.

SWOT

This quiz will test your understanding of the SWOT analysis, including terms, concepts, uses, advantages, and process.

Six Sigma for Process Improvement

A high level understanding of Six Sigma and what it is all about. This just gives you a glimpse of Six Sigma which entails more in-depth knowledge of processes and techniques.

Understanding Management

This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.

View More Free Quizzes
Related BrainMass Solutions

  • Time Value of Money Calculations

    All savings draw compounded interest of 10 percent per year. ? You make the first payment today and the last payment on the day of your turn 68 (43 annual end of the year payments). ?

  • Time Value Money for Retirement Planning

    If they make annual payments into a savings plan, how much will they need to save each year? Assume the first payment comes in 1 year. b.

  • Finance Questions on Retirement Account

    . $533.88 Loan 2 Loan 2 would be for the total cost of the car with John making a $3,000 payment at the end of the loan and equal annual payments to Uncle Job for the remainder. $592.49 Loan 3 Loan 3 would have John using $3000 of his personal savings

  • APR Finance Problem

    If you plan to make your first withdrawal today, how much can you withdraw each year for the next 20 years, assuming the annual withdrawal size is fixed?

  • Saving for Retirement Discussion

    How much could he have contributed to the voluntary savings plan in his first year of employment? 2.

  • Calculating EAR, APR, Effective Interest Rate, Retirement Saving

    I used 20 years Retirement 20 years Annual income $80,000 per year Payment beginning of the year Life expectancy 25 years Additional requirement $100,000 EAR 7% upon retirement Retirement plan $1,000 a month APR 9% Compounding 12 months

  • Cash Flow and Interest

    128500 Cash Flow and Interest I plan to work for 10 years, quit my job and then travel the world. I save $1,000 a year for the first 5 years and $2,000 a year for the next 5 years. These savings cash flows will start one year from now.

  • Mortgage refinancing

    Annual mortgage payment: Present Value= $200,000 Therefore mortgage payment= $16,523.92 per year =200000/12.103663 Step 2: Find the present value of outstanding amount This amount has been paid

  • Calculating Present and Future Value and Loan Amortizations

    You are 30 years old and plan to retire on your 60th birthday. You want to establish a plan with IRA that will require a series of equal, annual, end-of-year deposits into the retirement account.

View More Related Solutions