Construct the cash flow diagram. Assume the investor can earn 8% (compounded annually) on his investments, which
Question:
Construct the cash flow diagram. Assume the investor can earn 8% (compounded annually) on
his investments, which is a fairly reasonable assumption for a stock index fund.
Calculate the annual payments the investor can expect after reaching age 70 (A(71-91)).
Calculate how much the annual payment would be in today’s dollars (PWA), assuming an
inflation rate of 3%.
Jenny graduates from UWP at age 22. That same year her rich great aunt passes away leaving her with a $90,000 inheritance. Jenny considers buying a new car and putting a down payment on a house. Instead, she invests the money in a retirement account (EOY 22). The next year Jenny also starts investing in her company’s retirement plan. She invests $1000 the year after she gains the inheritance (EOY23) and increases this amount by $200 each year for the next 15 years (EOY24-EOY38). At this point she decides to quit her job and join the Peace Corps. She doesn’t save any more money for retirement. At age 71 (EOY) she begins withdrawing from her retirement account. Calculate the uniform amount she can withdraw each year from age 71 to age 90 to finance her retirement.
