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Time value of money: retirement plans

Ted Gardiner has just turned 30 years old. He has currently accumulated $35,000 toward his planned retirement at age 60. He wants to accumulate enough money over the next 30 years to provide for a 20-year retirement annuity of $100,000 at the beginning of each year, starting with his 60th birthday. He plans to save $5,000 at the end of each of the next 10 years. What equal amount must he save at the end of years 11 through 30 to meet this objective? The interest rate for the first 10 years will be 5 percent. After that time, the interest rate is expected to be 7 percent.

Solution Preview

First calculate the total amount of money required for requirement annuity i.e. PV of the 20 years annuity of $100,000 paid at the begining.
You can make use of present value Tables or use the formula.
The formula is
PV=1/r*(1-1/(1+r)^n)
where r is interest rate and n is number of years

Note, ...

Solution Summary

This solution provides step-by-step calculations for meeting saving objectives.

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