A couple will retire in 40 years; they plan to spend about $35,000 a year in retirement, which should last about 20 years. They believe that they can earn 9% interest on retirement savings. a. If they make annual payments into a savings plan, how much will they need to save each year? Assume the first payment comes in 1 year. How would the answer to part (a) change if
A couple will retire in 40 years; they plan to spend about $35,000 a year in retirement, which should last about 20 years. They believe that they can earn 9% interest on retirement savings. a. If they make annual payments into a savings plan, how much will they need to save each year? Assume the first payment comes in 1 year. How would the answer to part (a) change if
Chapter5: The Time Value Of Money
Section: Chapter Questions
Problem 35P
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A couple will retire in 40 years; they plan to spend about $35,000 a year in retirement, which should last about 20 years. They believe that they can earn 9% interest on retirement savings.
a. If they make annual payments into a savings plan, how much will they need to save each year? Assume the first payment comes in 1 year.
How would the answer to part (a) change if the couple also realize that in 15 years they will need to spend $65,000 on their child’s college education?
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Now problem needs to solved in two steps first calculate Present value of retirement fund and next step is to calculate annual savings required for that.
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