Reference no: EM133022971

Question - You are saving for retirement and you can afford to save $10,000 every year, starting one year from today. If you invest for 35 years at an annual interest rate of 7.75% per year, how much will you have saved for your retirement? Hint, this is the FV of an annuity. You may want to solve parts (c) and (e), then come back and solve (b) and (d), which are annuities due.

How much would you have in your retirement account if you began these same 35 annual payments immediately?

Now let's look at things a little differently. Suppose that once you retire, you want to be able to withdraw $55,000 per year (starting one year from your retirement) for a total of 20 years. How much would you need to have in your account when you retire to make this work assuming an annual interest rate of 7.75%? Hint: PV of an annuity.

How much would you need to have in your retirement account if you began these same 20 annual withdrawals immediately? Hint: This is now the PV of an annuity due. Reset your calculator to "END" of period payments when you have finished the annuity due problems.

Let's assume that you want to have $1,750,000 in your retirement account at the end of 40 years. You have now decided that you will deposit funds at the end of every month for 40 years. The interest rate is 7.75% (APR). How much do you need to deposit each month?

Compare the results you got in part a for future value of a "regular" annuity compare these to the value you got for the annuity due (part b). Now look compare the PV of the regular annuity in part (c) to the PV of an annuity due in part (d). What is the relationship that you see? Using the time value of money concepts you have learned so far, why does this relationship (FV of regular annuity vs. annuity due and PV of regular annuity vs. annuity due) occur?