Question 2 (.(a) Laura Smith is planning for her and her husband Luke's retirement. Luke andLaura, born on the same date, expect to retire in 30 years (when they both turn65). The life expectancy of men is 78 years and the life expectancy of women is87 years (i.e., assume that they die the day before their 78ih or 87th birthday).During retirement (while they are living), the couple wants to withdraw $25,000, foreach of them, at the beginning of each year from their savings account. Assumethat the interest rate during their retirement isannually; the interest rate after Luke dies isthe interest rate, prior to retirement, is 8 percent compounded annually. Howmuch will they have to deposit in their joint savings account (combine Luke andLaura) each month (beginning one month from now and ending on their retirementdate)?122 percentcompounded semi-13percent compounded annually; and,(b) Now assume that Luke and Laura Smith expect to inherit $25,000, 5 years fromnow. If they save the money for their retirement, how much will they have todeposit in their joint savings account (combine Luke and Laura) each month(beginning one month from now and ending on their retirement date)? --

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Answered: Question 2 (. (a) Laura Smith is…

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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Question 1 (a) Assume that a pension plan offers to pay $500,000 on a person's retirement (his/her sixty-fifth birthday) or a semi-annual annuity for the remainder of the person's life – i.e., starting 6 months from the date of retirement and including his/her date of death. Interest rates are 7 percent compounded annually, and a person's life expectancy has been determined statistically as being 78.5 years. Calculate the amount of the annuity that would make a person indifferent between the options? (b) A person joins a pension plan at age 40 (40th birthday). How much will s/he have to pay into the pension fund each year in order to accumulate a balance of $500,000 by the time s/he retires (age 65)? Assume that the final payment is on his/her 60th birthday. Interest rates are 9% compounded semi-annually.
Danny and Sandy have come to your office to discuss some retirement planning issues. Danny will be turning age 65 in five months and Sandy is currently 63. Danny has not started collecting Social Security benefits yet because he is still working, and he is unsure whether he will retire this year or wait a few more years. Sandy has never worked outside the home. If he continues to work, Danny will have health insurance for both himself and Sandy through his employer with a $250 annual per person deductible, a 90% coinsurance, and a maximum out-of-pocket limit of $5,000. Danny’s share of the premium is $50 per pay. Many of their retirement questions have to do with Medicare and health insurance because both Danny and Sandy have existing health issues. All the following statements are proper advice for you to give Danny and Sandy, EXCEPT: Danny should delay enrollment in Medicare Part B until he is no longer covered under his employer’s health plan. Sandy will be eligible for…
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You already have answered part A so I just want the answer to Part B please kindly send me as soon as possible. Thank you so much! Part A:By the end of this year you would be 35 years old and you want to plan for your retirement. You wish to retire at the age of 65 and you expect to live 20 years after retirement. Upon retirement you wish to have an annual sum of $50,000 to supplement your social security benefits. Therefore, you opened now your retirement account with 7% annual interest rate. At retirement you liquidate your account and use the funds to buy an investment grade bond which makes $50,000 annual coupon payments based on a 6 % coupon rate, throughout your retirement years.1. How much will the face value of the bond that you will be investing?2. Please calculate the monthly payment in your retirement account in order to be able to achieve the plan mentioned above?3. How much will your inheritors receive? Part B:Suppose you think if you were to retire right now you would…

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