Nominal rate of interest

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Cathy, aged 50, earns an annual salary of $97,500. Cathy expects raises of 2% each year from now to retirement.

Cathy plans to retire in 15 years when she will be 65. She has $177,000 now saved for retirement. Cathy plans to save 8% of her annual salary from now to retirement. She estimates that she will receive $21,000 (real dollars) per year in CPP and OAS at time of retirement. She will receive a company pension of $18,000, in real dollars, per year. She wants to spend $70,000 real dollars per year from the first year of retirement until age 90. 

The nominal rate of interest is 6.25% p.a. Inflation is 3% p.a. Ignore taxes in this question. 

Required:

  1. How much money will Cathy need at age 65 to achieve her spending objective? Assume Cathy will withdraw the funds at the beginning of the year.  
  2. How much will Cathy have saved at age 65? Assume Cathy will save at the end of the year. 

Reference no: EM133205331

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