Comments 1. It seems as though any problem involving the time value of money can be...
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Comments 1. It seems as though any problem involving the time value of money can be solved using any of the tables or equations. The key is to always make it easy on yourself. Solve it in a way that fits your intuition. Here's one way to think of the factors: PV of an Annuity => The investment required to support an annuity of withdrawals. FV of an Annuity => The balance to which an annuity of deposits will accumulate. 2. Our problem statement will involve deposits during working years to support withdrawals during retirement. It might be easy to work backwards by starting with the retirement needs and then inferring the needed deposits during working life. a. The accumulated investment at the date of retirement should be the PV of the withdrawals. b. The FV of the deposits should accumulate to the required investment. A picture might show Time Work deposits accumulated investments a. Accumulated investments = PV of the withdrawals b. FV of deposits = accumulated investments. withdrawals Problem statement Sandra Jones intends to retire in 20 years at the age of 65. As yet, she has not provided for retirement income, and she wants to set up a periodic savings plan to do this. She has the opportunity to make equal annual payments into a savings account that pays 4 percent interest per year. She intends that the accumulated investments at age 65 will support withdrawals for 25 years, when she will be 90 years young. Feel free to use tables from your text or a financial calculator. I think the tables from your text show these figures for 4 percent: Periods PV of an annuity FV of an annuity 20 25 13.590 15.622 29.778 41.646 Required How large must her deposits be to ensure that after retirement she will be able to withdraw $50,000 per year? Comments 1. It seems as though any problem involving the time value of money can be solved using any of the tables or equations. The key is to always make it easy on yourself. Solve it in a way that fits your intuition. Here's one way to think of the factors: PV of an Annuity => The investment required to support an annuity of withdrawals. FV of an Annuity => The balance to which an annuity of deposits will accumulate. 2. Our problem statement will involve deposits during working years to support withdrawals during retirement. It might be easy to work backwards by starting with the retirement needs and then inferring the needed deposits during working life. a. The accumulated investment at the date of retirement should be the PV of the withdrawals. b. The FV of the deposits should accumulate to the required investment. A picture might show Time Work deposits accumulated investments a. Accumulated investments = PV of the withdrawals b. FV of deposits = accumulated investments. withdrawals Problem statement Sandra Jones intends to retire in 20 years at the age of 65. As yet, she has not provided for retirement income, and she wants to set up a periodic savings plan to do this. She has the opportunity to make equal annual payments into a savings account that pays 4 percent interest per year. She intends that the accumulated investments at age 65 will support withdrawals for 25 years, when she will be 90 years young. Feel free to use tables from your text or a financial calculator. I think the tables from your text show these figures for 4 percent: Periods PV of an annuity FV of an annuity 20 25 13.590 15.622 29.778 41.646 Required How large must her deposits be to ensure that after retirement she will be able to withdraw $50,000 per year?
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Personal Finance
ISBN: 9781264101597
14th Edition
Authors: Jack Kapoor, Les Dlabay, Robert Hughes, Melissa Hart
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