Reference no: EM132838789

Question - You are advising a couple who is 35 years of age and plans to retire in 30 years at the age of 65. Upon retirement, they want to be able to receive $150,000 at the end of each year for a total of 25 years. (So their first retirement payment will be at age 66 and their last payment will be at age 90).

Currently they have a total of $25,000 in a savings account. They are expecting to receive a donation from their parents' estate for a value of $120,000 in exactly 10 years as their son goes to college.

They anticipate they will have to pay $80,000 per year for tuition and various expenses during four years of college. The college payments will start exactly 11 years from now (i.e. at the end of the first college year) and for simplicity they are assumed to be made yearly over four years.

You would like to figure out how much this couple must save at the end of each year, starting at the end of this year, for the next 30 years, so that they have enough money to achieve their retirement goal and pay for their son's college. Assume the interest rate is 8% and will remain the same over the entire period. You can answer all individual questions below to help you figure out the correct answer. You will not be penalized if you answer the big question above without addressing the individual sub-questions below. These questions are primarily meant to help you figure out the logical steps.

What is the present value today of the $25,000 in the couple's savings account?

What is the present value today of the $120,000 estate donation expected 10 years from now?

What is the present value today of the anticipated college expenses?

What is the present value 30 years from now (when the couple retires at age 65) of the $200,000 yearly payments received during retirement?