A client met with a financial consultant to figure out how much she will need to save
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Question:
a) In exchange of getting paid $30,000 for 8 years starting the beginning of year 6 (i.e., she will get paid $30,000 in the beginning of year 6, 7, and so on for 8 years), she agrees to set aside $x for 5 years, starting now (beginning of year 1, 2, 3, 4, 5). The interest rate is 8%. What is $x?
Draw time-line of all payments she makes and receives.
Clearly write equations for each annuity to be considered. Show all your work.
b) Solve for $x except that now interest rate is 5%. All other assumptions are as in a).
c) Solve for $x except that now she would like to have a more expensive lifestyle in retirement and will need $40,000 withdrawal each year (instead of $30,000). All other assumptions are as in a).
d) Assume interest rate is 8%, and everything else is as in a) except that the client actually has some savings to contribute to the retirement. Specifically, she will allocate $50,000 to retirement in the beginning of year 1 (In the retirement problem, account balance beginning of year 1 is $50,000). Solve for $x.
e) Now, assume that everything is the same as in a) except that all payments are made at the end of each year (and not beginning of each year as above), calculate $x.
f) Now, assume that a client actually will live forever, and would like to receive $30,000 each year starting in year 6 forever. Assume that all payments are made at the end of each year. Clearly show new equations you are going to use. Solver for $x.
Related Book For
Personal Finance Turning Money into Wealth
ISBN: 978-0134730363
8th edition
Authors: Arthur J. Keown
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