4

2. (20 points) Steve Friedman, a fresh-minted MBA employed by a major consulting firm in the Bay Area, has tuned 28 today and he plans to retire at the age 60 Steve's current annual salary is $ 90,000. Steve predicts that hie ealary will lncrease at a eteady rate of 4% per year until retirement. compounded annualy, how much wil he have saved by age 60? Assume he starts Investing from today and his last savings wil occur at the age of 60. Please show your work! (a). If Steve invests 10% of his salary every year in aggressive growth mutual funds with expected annual return of 9%, (b) If Steve plans to withdraw these retirement savings in equal amounts each year during the subsequent 25 years so that there will be nothing left in the account when Steve dies at the age of 85, how much can he withdraw each year? Assume his f withdrawal will be on his 61st birthday and his last withdrawal will be on his 85th birthday. What would your answer be if Steve wants to leave $5 million to his children when he dies at the age of 85? Again, the relevant interest rate is 9% per year. compounded annually st (c). S e wants to protect the value of his retirement income against inflation. If he wants his retirement income to rise by 3% per year, how much can he withdraw first year, Le., on his 61t birthday? How much can he withdraw on his 7oih birthday? Assume there will be nothing left in the account when Steve dies at the age of 85