You are planning to save for retirement over the next 30 years. To do this, you will invest$780 a month in a stock account and $380 a month in a bond account. The return of thestock account is expected to be 9.8 percent, and the bond account will pay 5.8 percent.When you retire, you will combine your money into an account with an 6.8 percentreturn.How much can you withdraw each month from your account assuming a 25-yearwithdrawal period? (Do not round intermediate calculations and round your finalanswer to 2 decimal places. (e.g., 32.16))Withdrawalper month

Question
Asked Sep 23, 2019

I am not quite sure how to structure this question attached. I think that I start by calculating the Future Value of the stock and bond annuities, but I do not know exactly what to do with the withdrawal period part. What exactly is it asking in that part?

You are planning to save for retirement over the next 30 years. To do this, you will invest
$780 a month in a stock account and $380 a month in a bond account. The return of the
stock account is expected to be 9.8 percent, and the bond account will pay 5.8 percent.
When you retire, you will combine your money into an account with an 6.8 percent
return.
How much can you withdraw each month from your account assuming a 25-year
withdrawal period? (Do not round intermediate calculations and round your final
answer to 2 decimal places. (e.g., 32.16))
Withdrawal
per month
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You are planning to save for retirement over the next 30 years. To do this, you will invest $780 a month in a stock account and $380 a month in a bond account. The return of the stock account is expected to be 9.8 percent, and the bond account will pay 5.8 percent. When you retire, you will combine your money into an account with an 6.8 percent return. How much can you withdraw each month from your account assuming a 25-year withdrawal period? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Withdrawal per month

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check_circleExpert Solution
Step 1

FV of an annuity can be calculted by excel formula FV. The inputs of this function are:

  • Rate = interest rate per period
  • Nper = Number of periods
  • PMT = Annuity per period
  • PV = present value of the money we start with
Step 2

Please see the white board. Please be guided by the second column titled “Linkage” to understand the mathematics. The cells highlighted in yellow contain important figures. Figures in parenthesis, if any, mean negative values. All financials are in $. 

Hence, total accumulated value on retirement = FV of Stock acoount + FV of Bond account = $1,689,702.87 + $367,434.81  = $2,057,137.68

 

|Linkage
A
Stock Account
Bond Account
Parameter
PMT
780.00
380.00
Rate of return
9.80%
5.80%
0.4833%
C B/ 12
Rate
0.8167%
Years to maturity
30
30
E
Nper
12 x D
360
360
PV
Accumulated amount, FV G FV(B,E,-A, F)
$1,689,702.87
$367,434.81
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|Linkage A Stock Account Bond Account Parameter PMT 780.00 380.00 Rate of return 9.80% 5.80% 0.4833% C B/ 12 Rate 0.8167% Years to maturity 30 30 E Nper 12 x D 360 360 PV Accumulated amount, FV G FV(B,E,-A, F) $1,689,702.87 $367,434.81

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Step 3

Amount that can be withdrawn per month can be calculated using the PMT function of excel. Please see the white board. Please be guided by the second column titled “Linkage” to...

Linkage
Retirement Account
$2,057,137.68
6.80%
0.5667%
Parameter
Initial Amount, PV
A
Rate of return
B
C B 12
Rate
Withdrawl period (years) D
25
E 12 x D
Nper
300
Amount that can be
PMT(C,E,-A)
$14,278.02
withdrawn per month
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Linkage Retirement Account $2,057,137.68 6.80% 0.5667% Parameter Initial Amount, PV A Rate of return B C B 12 Rate Withdrawl period (years) D 25 E 12 x D Nper 300 Amount that can be PMT(C,E,-A) $14,278.02 withdrawn per month

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