Monthly deposit be in order to fulfill retirement plan

Assignment Help Financial Management

Reference no: EM132036658

Suppose Connie is now at the age of 34 and starts savings for her retirement at the age of 65. She wants to be able to withdraw $300,000 from her savings account on each birthday after her retirement, with the first withdrawal on her 66th birthday and the last withdrawal on her 88th birthday.

(a) She is considering joining a savings plan offered by Insurance Company A, which offers her a return of 10% p.a. throughout the entire period. Assume that she wants to make equal deposit into the savings account on each of her birthdays, with the first deposit on her 35th birthday and the last deposit on her 65th birthday. How much money does she need to deposit every year into the savings account in order to meet her retirement plan?

(b) Suppose Insurance Company B offers Connie another savings plan. According to this savings plan, she is required to make a fixed monthly deposit into her account, where she could earn 15% EAR. On her retirement date, all her money in the savings account will be transferred to a more liquid account paying 6% EAR, from which she could withdraw her money freely as she likes.

To take advantage of the liquidity of her account, Connie is planning to make the following withdrawals in addition to her annual withdrawals of $300,000 starting from her 66th birthday to 88th birthday:

1. Withdrawing $200,000 from her account on her 65th birthday for a 3-month trip in celebration of her retirement.

2. Withdrawing $100,000 from her account on her 70th birthday and another $100,000 on her 80th birthday for organizing luxury birthday parties for herself.

3. Donating $80,000 every year to her university, starting from her 80th birthday to 88th birthday.

Assume that Connie will make her first deposit six months from today and the last deposit one month before her retirement.

(i) In order to fulfill her retirement plan, how much money must Connie have in her savings account on her 65th birthday when she retires?

(ii) What should her monthly deposit be in order to fulfill her retirement plan?

Reference no: EM132036658

Questions Cloud

Discuss microfinance activities in developing countries : Discuss microfinance activities in developing countries.

What is current share price : Afterwards the company anticipates paying a constant 4%. If the required return on the stock is 15 percent, what is the current share price?

Warships have been turned into artificial reefs : Decommissioned U.S. warships have been turned into artificial reefs in the ocean by towing them out to sea and sinking them.

Circumstances under which listing contact terminates : Which of the following is not one of the three circumstances under which a listing contact terminates?:

Monthly deposit be in order to fulfill retirement plan : What should her monthly deposit be in order to fulfill her retirement plan?

What is the market rate of return on stock : The common stock of Auto Deliveries sells for $27.46 a share. What is the market rate of return on this stock?

A fiduciary relationship is formed : A fiduciary relationship is formed. Which of the following individuals are not exempt from real estate liscensing requirements?

Explain the differences in the rates offered two companies : What might explain the differences in the rates offered the two companies? What is the QSD in this case?

Store owner indifferent between the new and old leases : What new lease payment would make the store owner indifferent between the new and old leases?

User Account

All Pages