Universal power supply postponement strategy

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Reference no: EM132040593

In what way is a universal power supply a postponement strategy?

You believe that you will need to have $75,000 per year in terms of today’s dollars when you retire in 40 years to live comfortably. That is, you want $75,000 per year worth of purchasing power in today’s dollars once you retire. You will take out the first payment one year after you retire and you expect to need a total of 30 equal payments. You currently have $5,000 in the bank. You plan to make payments at the end of each of the next 40 years. The return on investments is 8.00% per year (i.e., 8.00% per year is the nominal rate). You now need a savings and spending plan that will take inflation into account, which is expected to be 3.00% per year going forward. Assume that your payments (measured in nominal dollars) will increase 3.00% per year along with inflation. What is the amount (in nominal dollars) of the first deposit you must make to put this plan into action?

$2,840

$9,769

$10,063

$27,983

$28,823

Reference no: EM132040593

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