Question

You believe you will need to have saved S456,000 by the time you retire in 30 years in order to live comfortably. You also believe that you will inherit $109,000 in 5 years. (Do not round intermediate calculations. Round your answers to 2 decimal places.) If the interest rate is 6% per year, what is the future value of your inheritance at retirement? Future value How much additional money must you save to meet your retirement goal assuming you save your enture inheritance? Additional savings

Answer 1

Given

Amount required on retirement = $456000

Time for retirement = 30years

Amount to be obtained on inheritance after 5 years = $109000

Amount earned on depositing inheritance amount = Amount deposited $\times$ FvF(6%,25y)

= $109000 $\times$ 4.2919 = $467817.1

Therefore amount earned on inheritance meets the required amount of retirement. No additional is required to save.

If the amount deposited is not compounded annually

Amount earned on deposit of inheritance = ($109000 $\times$ 6% $\times$ 25y) + $109000 = $272500

Balance amount required = $456000 - $272500 = $183500

Amount required to save every year to earn $183500 after 30 years is

Future value = Annuity payment $\times$ FvAF(6%,30y)

$183500 = Annuity payment $\times$ 79.0582

Annuity payment = $2321.0748

Therefore amount required to save every year end for 30 years is $2321.0748 to earn $183500.