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AP/ADMS3530 3.0 Assignment #1 Solution Winter 2010 Instructions: (1) This assignment is to be done individually. You must sign and submit the standard cover page supplied as the last page of this assignment. Before you start, please read the note “Writing Style Required for ADMS3530 Assignments” posted on the course web site. Please stick to the writing guidelines suggested in the note. This assignment is due in the class of the week of February 8, 2010. For Internet section students, the assignment must be uploaded to the Centre for Distance Education: http://www.atkinson.yorku.ca/cde/assignmentupload and identified precisely in accordance with the course outline by Tuesday, February 9, 2010, midnight. This assignment must be handwritten.…show more content…
After retirement, she wants to live a life style that will cost about \$35,000 per year, payable at the beginning of each year. Her planning horizon is 30 years (i.e. she does not expect to live longer than age 95). Assume the rate of interest is 5%, all investments are made at the end of the year, and all expenses are payable at the beginning of the year. (a) How much money will she have when she retires at 65? (4 marks) (b) How much money does she need at age 65 to support her post-retirement years? (4 marks) (c) If her post-retirement expenses start as stated above at \$35,000 per year but increase at the expected rate of inflation of 2% per year, how much money does she need at age 65 to support her retirement? (5 marks) (d) To reach the amount found in part (c) she is planning to invest \$X this year, and increases this amount every year at the rate of 3% per year, what is this amount X? (5 marks) Answer (a) She will have FV = PMT x FVAF(5%, 40 years) = \$603,998.87 (b) She will need PV of Annuity Due: PV = PMT x PVAF(5%, 30 years) x (1.05) = \$564,937.58 (c) She will need PV of Growth Annuity Due: PV = [(35,000)(1.05)/(5% - 2%)] x [1 - (1.02/1.05)30] = \$711,592.43 (d) She needs to have the amount calculated in (c), i.e. \$711,592.43: [(X)/(.05-.03)] x [(1.05)40 - (1.03)40] = 711,592.43 X = \$3,767.08

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ADMS3530 3.0 Fall 2009 Question 3 – Home Mortgage (22 marks)

Assignment #1

One contributing factor to the recent real estate and credit crisis