For your retirement you would like to receive $75,000 a year in today's dollars for a period
Question:
For your retirement you would like to receive $75,000 a year in today's dollars for a period of 25 years. A problem, of course, is that you expect inflation to average 2.5 percent a year for the next 33 years until your retirement. (Inflation will not be a concern during retirement.) Interest rates (borrowing rates equal lending rates in this perfect market without taxes) are expected to be 7 percent until retirement and 5 percent during retirement. Your first retirement annuity is to be received 33 years from today, and your first contribution to your retirement will be at the end of this year and will be made 33 times. You will also require $125,000 (do not inflate) from your retirement funds in 17 years for a sabbatical that you are planning. Calculate the equal annual (33) contributions to your retirement fund required for this all to happen.
AnnuityAn annuity is a series of equal payment made at equal intervals during a period of time. In other words annuity is a contract between insurer and insurance company in which insurer make a lump-sum payment or a series of payment and, in return,...
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Foundations of Financial Management
ISBN: 978-1259024979
10th Canadian edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta