After a long and happy life, grand-uncle Philip passed away peacefully at the age of 99. This painful loss has been softened by a significant inheritance of $1 million, which you receive today. Your plan is to invest the money for the next 20 years at an annual rate of return of 5%. Thereafter, you want to withdraw the funds in 10 equal annual installments, starting 21 years from now. 

Carefully answer the following questions:

1. What's the expected value of your savings in 20 years?
2. How much money will you be able to withdraw annually (starting in 21 years)?
3. Suppose the expected rate of inflation is 3% per year. What's the real value of your savings from Question 1 in today's dollars?

Answer rating: 100% (QA)

To calculate the expected value of your savings in 20 years we can use the future value formula FV P... View the full answer