Mr. Smith is 35 years old. He has the following 2 goals: First goal: To retire when he is 60 years old. He expects to live up to 80 years old. He projects his annual retirement spending to be $200,000 in today's value. He will withdraw the annual spending at the beginning of each year when he retires. Second goal: To leave an amount of $5,000,000 to his son when he passes away when he is 80 years old. He has set up an investment account for the above2 goals a few years ago. Currently, there is $400,000 in that investment account. The rates of return for the investment account are expected to be 4% p.a. before he retires and 3% p.a. after his retires. If inflation rate is expected to be 2% p.a., how much should he save at the end of each year from now until he retires to achieve his goals?
Mr. Smith is 35 years old. He has the following 2 goals: First goal: To retire when he is 60 years old. He expects to live up to 80 years old. He projects his annual retirement spending to be $200,000 in today's value. He will withdraw the annual spending at the beginning of each year when he retires. Second goal: To leave an amount of $5,000,000 to his son when he passes away when he is 80 years old. He has set up an investment account for the above2 goals a few years ago. Currently, there is $400,000 in that investment account. The rates of return for the investment account are expected to be 4% p.a. before he retires and 3% p.a. after his retires. If inflation rate is expected to be 2% p.a., how much should he save at the end of each year from now until he retires to achieve his goals?
Chapter5: The Time Value Of Money
Section: Chapter Questions
Problem 42P
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Transcribed Image Text:Mr. Smith is 35 years old. He has the following 2 goals:
First goal:
To retire when he is 60 years old. He expects to live up to 80 years old.
He projects his annual retirement spending to be $200,000 in today's
value. He will withdraw the annual spending at the beginning of each year
when he retires.
Second goal: To leave an amount of $5,000,000 to his son when he passes away when
he is 80 years old.
He has set up an investment account for the above2 goals a few years ago. Currently,
there is $400,000 in that investment account. The rates of return for the investment
account are expected to be 4% p.a. before he retires and 3% p.a. after his retires.
If inflation rate is expected to be 2% p.a., how much should he save at the end of each
year from now until he retires to achieve his goals?
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