How much money will dwight have in his savings account

Reference no: EM133486527

Case: Dwight starts working at age 22 and plans to retire at age 65 at the end of the year. He earns $50,000 at age 22, and deposits $4,000 of his earnings to a savings account for retirement at the beginning of the year. The savings account offers 3% nominal interest rate compounded monthly. At each year, he will get a raise of 5% on his salary and he will increase his savings by 20% of his salary increase each year (e.g., if his salary increase was $1,000, he will increase his savings by $1,000*20% = $200). All savings will be deposited at the beginning of the year. Dwight is planning to make quarterly withdraws from his savings account at equal amounts and he is planning to exhaust his resources by the end of the year at age 85.

Question 1: How much money will Dwight have in his savings account when he retires? Set up a cashflow scheme illustrating Dwight's transactions in his savings account from while he works (don't forget to include Dwight's salary).

Question 2: Now, assume that Dwight deposits at the end of each year and repeat part a. How much is the difference between depositing at the end of the year and depositing at the beginning of the year? Where does this difference come from?

Question 3: Return back to deposits at the beginning of the year. How much money will Dwight take out of his retirement fund each quarter after he retires? Set up a cashflow scheme illustrating Dwight's transactions in his savings account from age 22 to 86.

Reference no: EM133486527

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