Q2. Suppose Mr. Ali wish to retire thirty years from today. He has just received a lump-sum
Question:
Q2. Suppose Mr. Ali wish to retire thirty years from today. He has just received a lump-sum amount of $ 30,000 from inheritance, he expects that he may need $ 50,000 on the marriage of his daughter 20 years from today. He determines that he needs $15,000 per year once he retires, with the first retirement funds withdrawn one year from the day he retires. He estimates that he will earn 10% per year on the retirement funds and that he will need funds up to and including his 20th birthday after retirement.
a) How much he needs to deposit in an account today so that he has enough funds to meet all his future expenditures?
b) How much he needs to deposit each year in an account, starting one year from today, so that he may have enough funds to meet all his future requirements?
c) Suppose that an investment promises to pay a nominal 11.6 percent annual rate of interest. What is the effective annual interest rate on this investment assuming that interest is compounded (a) annually? (b) semiannually? (c) quarterly? (d) monthly? (e) daily (365 days)?