Question

Q1-What is the present equivalent of the following cash flow? Assume interest rate is 8%. L80 80 6o 4o Q2- Imagine you have some rich cousin who looks down at you. She thinks you are incapable of managing your own affairs and talks you into supplementing some form of future retirement income through some individual retirement plan. You are supposed to retire in 15 years. You have to make 15 annual deposits into your account until you retire. The first deposit is $10K, and each subsequent deposit will increase at a 4% rate. Then, good times come and you can have 10 equal annual withdrawals. The last withdrawal is at the end of 25th year. Calculate (A), the amount of the equal withdrawals that you will get in the last 10 years. Your cousin has told you that the interest rate will always remain at 8%, compounded annually. Also, draw the cash flow diagram.

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Answer 1

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