After completing your Bachelor of Business (Accounting) degree, suppose you secure a permanent position as an accountant. You drafted a financial plan to retire in 35 years from now andthinking about creating a fund that will allow you to receive $25,000 at the end of each year for 30years after your retirement. The interest rates areexpected to be 2.45% per annum during the 35- year pre-retirement period and 3.15% during retirement. Required: a) To provide the 30-year, $ 25,000-a-year annuity, calculate how much should be in the fund account when you retire in 35 years. b) How much will you need today as a single amount to provide the fund calculated in part (a) if you earn 2.75% per year during the 35-yearpre-retirement period? c) (Using different interest rates) Assume that the interest in the pre-retirement period is 2.15% and in the post-retirement period, it is 3.05%. To fund the 30-year annual annuity payments of $25,000, how much do you need to save annually until retirement? (Deposits are made at the end of each period for 35 years).

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 43P

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After completing your Bachelor of Business (Accounting) degree, suppose you secure a permanent position as an accountant. You drafted a financial plan to retire in 35 years from now andthinking about creating a fund that will allow you to receive $25,000 at the end of each year for 30years after your retirement. The interest rates areexpected to be 2.45% per annum during the 35- year pre-retirement period and 3.15% during retirement.

Required:

a) To provide the 30-year, $ 25,000-a-year annuity, calculate how much should be in the fund account when you retire in 35 years.

b) How much will you need today as a single amount to provide the fund calculated in part (a) if you earn 2.75% per year during the 35-yearpre-retirement period?

c) (Using different interest rates) Assume that the interest in the pre-retirement period is 2.15% and in the post-retirement period, it is 3.05%. To fund the 30-year annual annuity payments of $25,000, how much do you need to save annually until retirement? (Deposits are made at the end of each period for 35 years).

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