Question

4: You plan to retire at age 40 after a highly successful but short career. You would like to accumulate enough money by age 40 to withdraw $234,000 per year for 40 years. You plan to pay into your account 15 equal installments beginning when you are 25 and ending when you are 39. Your account bears interest of 10 percent per year. Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.) Required: 1. How much do you need to accumulate in your account by the time you retire? (Round your final answer to the nearest dollar points amount.) 2 How much do you need to pay into your account in each of the 15 equal installments? (Round your final answer to 2 decimal

Answer 1

1.

To calculate the amount by the time you retire is the present value of the sum,

As you have not posted the table, please the cumulative PV factor of 10% for 40 years and multiply that by $234,000, that will be your future value.

but I have also calculated this in excel as follows:

=PV(10%,40,-234000)

=$2,288,298

2.

We have to accumulate $2,228,298 in 15 years, thus PMT needs to be calculated:

Check for Cumulative FV Factor for the annuity due at 10% for 15 periods and divide 2,88,298 by the factor, also in excel it is:

=PMT(10%,15,0,228298)

=$72,021