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Calculating Time Value of Money

Your annual salary is $100,000. Every year for the next 30 years you plan to save 10 percent of your salary and invest it in the stock market at an expected return of 9 percent per year.
1. How much will you have in your account at the end of 30 years if your salary grows at 4 percent per year?
2. How much can you withdraw every year for 20 years following retirement assuming there's nothing left in the account at the end of those 20 years?
3. How much can you withdraw every year for 20 years following retirement assuming you want to leave $100,000 for your children at the end of those 20 years?

Solution Preview

1. How much will you have in your account at the end of 30 years if your salary grows at 4 percent per year?

First deposit=P=100000*10%=$10,000
Expected return=r=9%
Growth rate=g=4%
Number of periods=n=30 years
Future Value of a growing ...

Solution Summary

Solution depicts the steps to calculate future value and periodic withdrawals in the given case. Calculations are carried out with the help of suitable formulas.

$2.19