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?
(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 ...
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