Reference no: EM133272521

Retirement Problem

You are 20 years old today. When you turn 62, you want to retire. Starting on your 62nd birthday you want to receive funds from a growing annuity; the first payment would be $60,000 and grow at a rate of 5% per year for a total of 35 payments (including the first one). Your plan
is to start saving for this plan on your 24th birthday; your first deposit would be $10,000 and would stay constant for a total of 25 deposits. On your 55th birthday, you calculate the amount of your compounded savings have and need to determine whether you have enough saving or not. On that 55th birthday, do you need to deposit more, or are you overfunded and can take money out and still have enough in the account to fund your planned annuity? Assume a discount rate (or rate of return) of 8% for all periods.

1. When you do the present value calculation for the growing annuity, your result will be the present value as of what birthday?

a. 60

b. 61

c. 97

d. 98

e. 63

2. If you calculate the present value of the savings plan of $10,000 annual payments, your calculation is the present value as of what birthday?

a. 49

b. 20

c. 50

d. 23

e. 25