Li is amazed that he will be able to accumulate over $600,000. However, he knows that inflation will increase his cost of living significantly in 30 years. He assumes 3% inflation and wants to find the income he needs at age 67 to have the same purchasing power as $40,000 today. (Hint: Look at inflation in Section 10.2 and use the compound interest table in Section 10.1.
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Li is amazed that he will be able to accumulate over $600,000. However, he knows that
inflation will increase his cost of living significantly in 30 years. He assumes 3% inflation
and wants to find the income he needs at age 67 to have the same
$40,000 today. (Hint: Look at inflation in Section 10.2 and use the compound interest table
in Section 10.1.
Step by step
Solved in 2 steps
- By the time he turns 60, Justin (just turned age 31) wants the amount in his RRSP to have the purchasing power of $250,000 in current dollars. What annual contributions on his 32nd through 60th birthdays inclusive are required to meet this goal if the RRSP earns 8% compounded annually and the rate of inflation is 2% per year? Use TVM function on calculator to solveAn engineer who is now 65 years old began planning for retirement 40 years ago. At that time, he thought that if he had $1 million when he retired, he would have more than enough money to live his remaining life in luxury. Assume the inflation rate over the 40-year time period averaged a constant 4% per year. (a) What is the CV purchasing power of his $1 million at age 65? (Hint: Use the day he started 40 years ago as the base year. (b) How many future dollars should he have accumulated over the 40 years to have a CV purchasing power equal to $1 million at his current age of 65?Using the formula: Oshri is planning on his retirement, so he is setting up a payout annuity with his bank. He is now 30 years old, and he will retire when he's 60. He wants to receive annual payouts for 25 years, and he wants those payouts to receive an annual COLA of 3.5%. A. He wants his first payout to have the same purchasing power as does $13,000 today. How big should that payout be if he assumes inflation of 3.5% per year?
- Mr. Peter Phang, aged 35, is planning to retire at age 55. He understands from his advisor that he currently has a retirement funding shortfall of $800,000 at age 55 when he retires. His financial planner has recommended that he invest his savings in equities to help him meet the retirement funding shortfall. Assuming that the inflation-adjusted rate of return on equities is 5.5%, what is the regular savings which Peter will need to set aside yearly till his retirement?A woman desires to have $400,000 in a savings account when she retires in 20 years. Because of the effects of inflation on spending power, she stipulates that her future “nest egg” will be equivalent to $400,000 in today’s purchasing power. If the expected average inflation rate is 7% per year and the savings account earns 5% per year, what lump-sum amount of money should the woman deposit now in her savings account?Dave wants to retire in 30 years, and he wants his savings to be enough to provide the same buying power as an amount of 1,000,000 could provide today. He believes that inflation will cause prices to increase by 3% each year over the next 30 years, and that his investments will earn an annual effective rate of return of 8%. He can save $1000 at the end of every month the first year, and he plans to increase the deposits yearly by a constant percent. Assuming that his estimates of 3% annual inflation and 8% return rate are correct, what percent annual increase in his savings rate will help him reach his goal? Do NOT use excel to compute values, show work using annuity formulas!
- Bob wants to retire in 15 years, and he wants his savings to be enough to provide the same buying power as an amount of 500,000 could provide today. He believes that inflation will cause prices to increase by 6% each year over the next 15 years, and that his investments will earn an annual effective rate of return of 4%. He can save $500 at the end of every month the first year, and he plans to increase the deposits yearly by a constant percent. Assuming that his estimates of 6% annual inflation and 4% return rate are correct, what percent annual increase in his savings rate will help him reach his goal?Beth is 35 years old and wants to set up a payout annuity. She plans to retire at age 65 and wants to receive payouts for 20 years. She wants the payouts to have an annual C.O.L.A. of 2.9%. If the first payout is to have the same purchasing power as $24,000 today, how big should that payout be, assuming 2.9% inflation?Shelly Franks is planning for her retirement, so she is setting up a payout annuity with her bank. She is now 35 years old, and she will retire when she is 65. She wants to receive annual payouts for twenty years, and she wants those payouts to receive an annual COLA of 4%. (a) She wants her first payout to have the same purchasing power as does $17,000 today. How big should that payout be if she assumes inflation of 4% per year? (b) How much money must she deposit when she is 65 if her money earns 8.3% interest per year? (c) How large a monthly payment must she make if she saves for her payout annuity with an ordinary annuity? (The two annuities pay the same interest rate.) (d) How large a monthly payment would she make if she waits until she is 40 before starting her ordinary annuity?
- A grandfather is planning to leave his only granddaughter well off when she reaches the age of 25. He plans to deposit a lump sum now, which is her second birthday, such that she will have enough money to live comfortably without working. He wants her to have an amount that would have the same purchasing power as $2 million today. If he can invest the money now and earn an average market interest rate of 8% per year while the inflation rate averages 4% per year, what amount must he deposit?a. Inflation is expected to average 4% for the long term and Mr. Smith earned $74,000 this year, how much must he earn in 20 years just to keep up with inflation and maintain the balance between his income and his increasing expenditures?Assume that you want to retire 30 years from now with an amount of money that will have the same value (purchasing power) as $3 million today. If you believe the inflation rate will average 4.8% per year, determine the amount of future dollars you will need. The amount of future dollars you will need is $ . (Enter your answer in dollars and not in millions of dollars.)