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    Time Value of Money- Annuity

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    You plan to retire in twenty years. When you retire, you will need $150,000 per year for thirty years with the first payment needed at t=21. You expect to receive $50,000 from a trust at t=12 which you will deposit in your retirement account. At t=10, you plan to take a world cruise that will cost you $15,000 to be paid out of the retirement account. You plan to make nineteen equal yearly deposits beginning at the end of second year into this account. If the account pays interest at 10 percent p.a., what should be equal annual deposits?

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    Solution Preview

    Current time = t=0
    To be received :
    30 receipts from t= 21 to t= 50 of $150,000
    At t= 10 , for world cruise $15,000

    To be paid
    At t= 12 $50,000 from another trust
    19 deposits from t= 2 to t= 20 of x (to be calculated)

    We will calculate the PV of deposits and receipts at time 0
    The PV of deposits must equal PV of receipts

    Receipts ...

    Solution Summary

    The solution calculates annuity as the time value of money.