Assume a world with an inflation rate of 0%. Lucas is 25 years old, will retire...

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Assume a world with an inflation rate of 0%. Lucas is 25 years old, will retire at age 65, and is expected to live until age 90. He earns $50,000 a year in today's dollars as a public relations specialist at ABC Sports Management. Lucas will invest in RRSP with the expected return of 4% p.a. His current RRSP balance is $0. When he retires, he wants to withdraw $20,000 before-tax from his RRSP at the beginning of each year for 25 years following his retirement. Required: (1) How much does Lucas need at retirement in his RRSP? (5 marks) (2) What is the annual investment that Lucas must make to RRSP in order to achieve his goal in (1)? (5 marks) Assume he makes equal investments at the end of each year. (3) His paycheck is subject to a 3% annual increase. So, instead of making equal investments, Lucas decided to also increase his savings amount every year. How much does Lucas need to invest in RRSP at the end of 1st year if he increases his savings amount by 1.5% every year? (5 marks) (4) If he already had $30,000 saved in his RRSP, what would be your answer to (3)? (5 marks) Assume a world with an inflation rate of 0%. Lucas is 25 years old, will retire at age 65, and is expected to live until age 90. He earns $50,000 a year in today's dollars as a public relations specialist at ABC Sports Management. Lucas will invest in RRSP with the expected return of 4% p.a. His current RRSP balance is $0. When he retires, he wants to withdraw $20,000 before-tax from his RRSP at the beginning of each year for 25 years following his retirement. Required: (1) How much does Lucas need at retirement in his RRSP? (5 marks) (2) What is the annual investment that Lucas must make to RRSP in order to achieve his goal in (1)? (5 marks) Assume he makes equal investments at the end of each year. (3) His paycheck is subject to a 3% annual increase. So, instead of making equal investments, Lucas decided to also increase his savings amount every year. How much does Lucas need to invest in RRSP at the end of 1st year if he increases his savings amount by 1.5% every year? (5 marks) (4) If he already had $30,000 saved in his RRSP, what would be your answer to (3)? (5 marks)

Answer rating: 100% (QA)

SOLUTION 1 To calculate how much Lucas needs at retirement in his RRSP we need to determine the present value of his desired annual withdrawal of 2000... View the full answer