You are 30 years old and plan to retire at age 60. Your goal is to create a fund that will allow you to receive $100,000 per year for 25 years after the retirement. You know that you will be able to earn an average of 8% per year for all your accounts. If you make annual payments into a retirement account, how much will you need to save each year?© BrainMass Inc. brainmass.com October 16, 2018, 7:48 pm ad1c9bdddf
This question can be divided into two parts. For the first part you need to know how much money the person should have when he retires in order to give himself 100,000 per year for 25 years at 8%.
The solution explores future value and present value problem described below and provides an excellent answer to the question.
Managerial Finance: future value of annuity, present value of a security, cash flows
4.1 If you deposit $10,000 in a bank account that pays 10% interest annually, how much will be in your account after 5 years?
4.2 What is the present value of a security that will pay $5,000 in 20 years if securities of equal risk pay 7% annually?
4.6 What is the future value of a 7%, 5-year ordinary annuity that pays $300 each year? If this were an annuity due, what would its future value be?
4.13 Find the present value of the following ordinary annuities
A. $400 per year for 10 years at 10%
B. $200 per year for 5 years at 5%
C. $400 per year for 5 years at 0%
D. Now rework parts a, b, and c assuming that payments are made at the beginning of each year; that is, they are annuities due.
4.14 Find the present values of the following cash flow streams. The appropriate interest rate is 8%
Year Cash Stream A Cash Stream B
1 $100 $300
2 400 400
3 400 400
4 400 400
5 300 100
B. What is the value of each cash flow stream at a 0% interest rate?View Full Posting Details