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Finding annuity

You plan to take a long trip through Europe, leaving in 5 years. You're plan is to save money for the next five years, leave at the end of the fifth year, and then survive on your savings for 3 years. You estimate you can survive in Europe on $10,000 a year. You estimate that your investment account will earn 8% forever. Your account has $1000 in it today (t=0).

Take me through the steps (no more than 4 steps) of how you would calculate the amount you must deposit in years t=1-5, assuming the deposits will be of equal amounts. [Either show me the formulas associated with each step, or show me the Excel functions with the appropriate arguments reported as well]. Be clear: write things like "add this amount to the amount calculated in Step 1." You may also use notation like: =-PV(10%,15,Step 1 value).

Solution Preview

Step 1

Calculate the Present value of $10,000 a year for 3 years (year 6,7,8) at the end of 5 years

$25,771 calculated using Excel function ...

Solution Summary

The solution calculates annuity for a calculated future value and a given interest rate.