Reference no: EM13479464

1. Garrett Erdle has just turned 26 years of age. Although Garrett currently has a negative net worth, he expects to pay off all of his financial obligations within four years and then to embark on an aggressive plan to save for retirement. He wishes to be able to withdraw $120,000 per year during the first 10 years of retirement (the first withdrawal coming on his 61st birthday) and $160,000 during the next 10 years of retirement. As a precaution against unexpected longevity, he would like to have a net worth of $800,000 after the withdrawal on his 80th birthday. Garrett expects the after-tax return on his investments to be 5% until he turns 60, and 8% thereafter. What equal annual amount must Garrett save at the end of each year (the first deposit will occur on his 31st birthday and the last deposit will occur on his 60th birthday) to meet these retirement needs. Please draw time-lines to show how you solved this problem.

2.Ted Gardiner has just turned 30 years old. He has currently accumulated $50,000 toward his planned retirement at age 60. He wants to accumulate enough money over the next 30 years to provide for a 20-year retirement annuity of $120,000 at the beginning of each year, starting with his 60th birthday. He plans to save $5,000 at the end of each year of the next 10 years. What equal amount must he save at the end of years 11 through 30 to meet this objective? The interest rate for the first 10 years will be 5 %. After that time, the interest rate is expected to be 7%.

Please draw timelines and show all of your work/calculations on this paper.

3. Frank Thomas is planning for the day when his child, Laura, will go to college. Laura has just turned 8 and plans to enter college on her 18th birthday. She will need $25,000 at the beginning of each year in school. Frank plans to give Laura a Mercedes-Benz as a combination graduation and 22nd birthday present. The Mercedes is expected to cost $50,000. Frank currently has $20,000 saved for Laura. Also, Frank expects to inherit $30,000 9 years from now that will be used for Laura's education. Frank expects to be able to earn 5% after tax on any investments. How much must Frank save at the end of each year for the next 10 years in order to provide for Laura's education and auto?