Question

Suppose you want to retire in 45 years, and after retirement, you estimate that you will live another 25 years. If you want your income in retirement to be $6,000 per month for the 25 years, what is the present value of your retirement fund if you could earn 8% for the entire period (from now till end of retirement!). Hint: for your retirement years, n=300 with P/Y of 12 in your calculator. For the time until retirement, n=45. Don't forget to re-set your calculator to 1 P/Y for this part. Round to the nearest whole dollar.

Answer 1

PVOrdinary Annuity = C*[(1-(1+i/100)^(-n))/(i/100)]

C = Cash flow per period

i = interest rate

n = number of payments

PV= 6000*((1-(1+ 8/1200)^(-25*12))/(8/1200))

PV = 777387.14

Future value = present value*(1+ rate)^time

777387.14 = Present value*(1+0.08)^45

Present value = 24353.891