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    Future Value of Annuity

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    A couple will retire in 50 years; they plan to spend about 30,000 per year in retirement, which should last about 25 years. They believe they can earn 10% interest on retirement savings.
    a. 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. how would the answer to part (a) change if the couple also realize that in 20 years they will need to spend 60,000 on their childs college education?

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    Solution Preview

    (a)This is a question on annuities. The first is the amount to be deposited every year for 50 years at 10% and the second is that is amount should give 30,000 per year for 25 years at 10%.
    We start with 30,000. We need this money for 25 years and the corpus would earn 10%. We find the the amount which would give 30,000 per year for 25 years at 10%. Since ...

    Solution Summary

    The solution explains how much amount should be saved annually so that a predetermined amount can be paid as annuity at the end of contributions