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Your plan to retire exactly in 20 years. Your goal is to create funds that will allow you to...

Question:

Your plan to retire exactly in 20 years. Your goal is to create funds that will allow you to receive 20000 AT end of each year for 30 years between retirement and death based upon actuary tables. You know that you will be able to earn 11percent per year during the 30 years retirement period.

(a)how large funds will you need when you retire in 20 years to provide 30 years 20000 retirement annuity.

(b) How much will you need today as a single amount to provide the funds calculated in part (a)above if you earn only 9 percent per year during 20 years preceding retirement?

Annuity:

An annuity is a series of consistent cash flows, occurring at the end of each period (for an ordinary annuity) or at the beginning of each period (for an annuity due) for a set period of time.

Answer and Explanation:

(a) How large funds will you need when you retire in 20 years to provide 30 years 20,000 retirement annuity.

{eq}Value_{20} = 20,000 * \cfrac{1-(1/(1.11)^{30})}{0.11} = 173,875.85 {/eq}

(b) How much will you need today as a single amount to provide the funds calculated in part (a)above if you earn only 9 percent per year during 20 years preceding retirement?

{eq}Value_0 = \cfrac{173,875.85}{1.09^20} = 31,024.82 {/eq}


Learn more about this topic:

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Discounted Cash Flow, Net Present Value & Time Value of Money

from Accounting 102: Intro to Managerial Accounting

Chapter 8 / Lesson 4
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