Sue wants a yearly income of 80000 starting at her age 66

Reference no: EM13363718

Sue wants a yearly income of $80,000 starting at her age 66 and continuing each year of her retirement, no matter how long she lives. She therefore needs a large sum of money (which she plans to save up) which will be the source of her $80,000/year retirement income. Assume she can earn 4% on her money. [This is a perpetuity question. See Chapter 6.] The amount of money Sue needs at her age 65 is:

A. $1,000,000
B. $1,333,000
C. $1,667,000
D. $2,000,000

The answer to question 1 is known as Sue's (retirement) "number", as mentioned on various TV advertisements. Sue would like to know how much money she needs to put away TODAY (she is 25 years old), which will grow to her retirement number in 40 years. Again, assume that she can earn 4% on her money. [This is a Single Cash flow problem of Chapter 5. Given the FV, r and number of periods, find PV.]

A. $352,895
B. $402,345
C. $416,578
D. $430,116

Unfortunately Sue doesn't have the answer to number 2 available to put away today. She therefore wants to know how much she must save on a yearly basis (one payment per year for 40 years), which will produce the same result as putting away the single cash flow of question number 2 above. Sue knows to use the Chapter 6 formula for finding the yearly value, given the present value of an annuity. The present value of the annuity is, of course, the answer to question 2. The number of periods is (again) her planning horizon of 65-25=40 years. Again, assume a saving rate of 4%. Her yearly contribution to her retirement is therefore:

A. $10,523
B. $15,402
C. $21,047
D. $25,197

Aggressive Al, also age 25, is planning his retirement too. Al prefers to believe that his investments will average 8% throughout his lifetime, including his retirement years. For Al, re-calculate the above three problems, replacing the assumed rate of 4% with Al's choice of 8%. Using Aggressive Al's approach, how much money must be saved each year to accomplish the same retirement income of $80,000 per year?

A. $3,860.16
B. $5,402.39
C. $21,047.89
D. $25,197.11

Reference no: EM13363718

Questions Cloud

Consider that the real risk-free rate is 4 and the : consider that the real risk-free rate is 4 and the maturity risk premium is zero. if the nomincal rate of interest on

Great corporation has the following capital situation debt : great corporation has the following capital situation. debt one thousand bonds were issued five years ago at a coupon

Obrey will start attending college in september 2024 at : obrey will start attending college in september 2024 at which time she will need 10000 for the first year of study. her

A father concerned about the rapidly rising cost of a : a father concerned about the rapidly rising cost of a college education is planning a savings program to put his

Sue wants a yearly income of 80000 starting at her age 66 : sue wants a yearly income of 80000 starting at her age 66 and continuing each year of her retirement no matter how long

Eleanor needs 40000 a year to live on in retirement net of : eleanor needs 40000 a year to live on in retirement net of the income she will receive. she will be retiring in 22

It is important to keep a christian perspective in finances : it is important to keep a christian perspective in finances. a great tool that many churches have utilized is crown

It is important to know what the standard rates are look at : it is important to know what the standard rates are. look at moneycafe. read through the definitions and report the

1how much life insurance do you need using the msn money : 1.how much life insurance do you need? using the msn money life insurance calculator enter the information and post

User Account

All Pages