Assume that over the 30-years of retirement you are able to earn a weighted average of 7%
Question:
Assume that over the 30-years of retirement you are able to earn a weighted average of 7% compounded annually through investing in bonds, stock, and CD's. Using this rate, discount the total expenses for each of the 30-years you found in part B3 back to the date of your retirement. For example if your expenses for the last 3-years of retirement (years 28, 29, and 30) totaled $200,000, $206,000, and $212,180, respectively, due to inflation's effects, discount these amounts back to the date of your retirement using the present value formula. For the 28th year: $200,000/(1.07)^28 = $30,080.44. For the 29th year: $206,000/(1.07)^29 = $28,955.94. For the 30th year: $212,180/(1.07)^30 = $27,873.47. If you add these three discounted values they total $86,909.85. That means a deposit of $86,909.85 invested at retirement earning 7% compounded annually will grow sufficiently to withdraw $200,000 in 28-years, then $206,000 the next or 29th year of your retirement, then $212,180 the final or 30th year of your retirement. You need to do this for each of the 30-years then add the total of the discounted values for each of the 30-years. This will become your required "nest-egg" at retirement!
Introduction To Corporate Finance
ISBN: 9781118300763
3rd Edition
Authors: Laurence Booth, Sean Cleary