Able to make the desired withdrawals at retirement

Assignment Help Financial Management

Reference no: EM131841875

This is a classic retirement problem. A time line will help in solving it. Your friend is celebrating her 40th birthday today and wants to start saving for her anticipated retirement at age 65. She wants to be able to withdraw $129,000 from her savings account on each birthday for 20 years following her retirement; the first withdrawal will be on her 66th birthday. Your friend intends to invest her money in the local credit union, which offers 7.4 percent interest per year. She wants to make equal annual payments on each birthday into the account established at the credit union for her retirement fund.

a. If she starts making these deposits on her 41st birthday and continues to make deposits until she is 65 (the last deposit will be on her 65th birthday), what amount must she deposit annually to be able to make the desired withdrawals at retirement? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Annual deposit amount $

b. Suppose your friend has just inherited a large sum of money. Rather than making equal annual payments, she has decided to make one lump sum payment on her 40th birthday to cover her retirement needs. What amount does she have to deposit? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Amount deposit $

c. Suppose your friend’s employer will contribute $3,900 to the account every year as part of the company’s profit-sharing plan. In addition, your friend expects a $179,000 distribution from a family trust fund on her 55th birthday, which she will also put into the retirement account. What amount must she deposit annually now to be able to make the desired withdrawals at retirement? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Reference no: EM131841875

Questions Cloud

What is current price of the bond : If the yield to maturity is 7.9 percent, what is the current price of the bond?

What is current bond price : Sqeekers Co. issued 12-year bonds a year ago at a coupon rate of 7.8 percent. what is the current bond price?

What is the cost of equity after recapitalization : Bruce & Co. expects its EBIT to be $42,000 every year forever. What is the cost of equity after recapitalization?

Bonds two years ago at coupon rate : Heginbotham Corp. issued 20-year bonds two years ago at a coupon rate of 8.3 percent.

Able to make the desired withdrawals at retirement : what amount must she deposit annually to be able to make the desired withdrawals at retirement?

Difference between general ledge and chart of accounts : Explain the difference between the general ledge and a chart of accounts.

What price change do you expect for this bond : A citigroup bond with maturity if six years and a yield of 6% has a modified duration if 4.51 years. what price change do you expect for this bond?

Should the market maker execute the trade : The current S&P 500 index is 2000 and the continuously compounded risk-free interest rate is 2% per year. Should the market maker execute the trade? Why?

How much must ursula widower include in income : What amount can USA Corporation deduct for premiums attributable to Ursula? How much must Ursula's widower include in income?

User Account

All Pages