Springfield mogul Montgomery Burns, age 80, wants to retire at age 100, so he can steal...
Springfield mogul Montgomery Burns, age 80, wants to retire at age 100, so he can steal candy from babies full time. Once Mr. Burns retires, he wants to withdraw $500 million at the beginning of each year for 10 years from a special off-shore account that will pay 18% annually. In order to fund his retirement, Mr. Burns will make 20 equal end-of-the-year deposits in this same special account that will pay 18% annually. How large of an annual deposit must be made to fund Mr. Burns retirement plans?
Homework Answers
a. The first present value of the retirement account is calculated using the PV function in excel as follows:
=PV(18%,10,-500000000,,1)
=2,651,510,914.01
b. Annual deposits are calculated using the PMT function as follows:
=PMT(18%,20,0,-2651510914.01)
=$18,083,254.60
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