Question 2 (13 marks) Godfrey has just recovered from a serious illness and is planning to...
Fantastic news! We've Found the answer you've been seeking!
Question:
![image text in transcribed](https://s3.amazonaws.com/si.experts.images/answers/2024/05/6646f31bd4f37_7876646f31b1906f.jpg)
Transcribed Image Text:
Question 2 (13 marks) Godfrey has just recovered from a serious illness and is planning to start his early retirement at the age of 55 (i.e., start the retirement right after his 55th birthday). According to Godfrey's calculations, he would need an average of $40,000 per month for the living expenses during the retirement years. The monthly withdrawal will be made at the beginning of each (retirement) month. Godfrey would also like to leave his teenage daughter $20m which she would be able to inherit in 10 years after his retirement. The retirement plan Godfrey purchases will provide a fixed interest return of 12%, compounded monthly. a) How much money (the "target amount") will Godfrey need to have in his retirement savings account at his 55th birthday so that he meet all expected expenses if he expects a 15-year retirement life? (5 marks) To meet the "target amount", the retirement plan provides Godfrey with 2 choices/plans: Plan (1): make a single deposit of $4,086,356.21 into the retirement plan account (that earns a fixed interest return of 12%, compounded monthly, as stated above); or Plan (2): make 72 month-end deposits of $50,000 each into the retirement plan account (the last of which will be made exactly at his 55th birthday) PLUS one single payment at his 55th birthday. b) If Godfrey chooses Plan (1), when at the latest (in terms of age) will be required to make the lump-sum deposit in order to have enough money to meet the retirement expenses? (4 marks) c) If Godfrey chooses Plan (2), what is the size of the single payment that he will be required to make at his 55th birthday in order to have enough money to meet the retirement expenses? (4 marks) Question 2 (13 marks) Godfrey has just recovered from a serious illness and is planning to start his early retirement at the age of 55 (i.e., start the retirement right after his 55th birthday). According to Godfrey's calculations, he would need an average of $40,000 per month for the living expenses during the retirement years. The monthly withdrawal will be made at the beginning of each (retirement) month. Godfrey would also like to leave his teenage daughter $20m which she would be able to inherit in 10 years after his retirement. The retirement plan Godfrey purchases will provide a fixed interest return of 12%, compounded monthly. a) How much money (the "target amount") will Godfrey need to have in his retirement savings account at his 55th birthday so that he meet all expected expenses if he expects a 15-year retirement life? (5 marks) To meet the "target amount", the retirement plan provides Godfrey with 2 choices/plans: Plan (1): make a single deposit of $4,086,356.21 into the retirement plan account (that earns a fixed interest return of 12%, compounded monthly, as stated above); or Plan (2): make 72 month-end deposits of $50,000 each into the retirement plan account (the last of which will be made exactly at his 55th birthday) PLUS one single payment at his 55th birthday. b) If Godfrey chooses Plan (1), when at the latest (in terms of age) will be required to make the lump-sum deposit in order to have enough money to meet the retirement expenses? (4 marks) c) If Godfrey chooses Plan (2), what is the size of the single payment that he will be required to make at his 55th birthday in order to have enough money to meet the retirement expenses? (4 marks)
Expert Answer:
Posted Date:
Students also viewed these finance questions
-
Compare and contrast the progressive and positive discipline procedures.
-
What is capital cost allowance? How does capital cost allowance differ from depreciation for financial reporting purposes?
-
John owns a second home in Palm Springs, CA. During the year, he rented the house for $5,000 for fifty-six days and used the house for fourteen days during the summer. The house remained vacant...
-
Kingston Corp., a manufacturing company, uses the perpetual inventory method for all inventory accounts. Direct materials, direct labor, and applied overhead are recorded on cost sheets similar to...
-
Shown below are the financial statements of Filmore Company. Additional data: 1. Depreciation expense was $6,000. 2. Dividends of $28,000 were declared and paid. 3. During the year, equipment was...
-
Excel Online You are considering a 15-year, $1,000 par value bond. Its coupon rate is 10%, and interest is paid semiannually. The data has been collected in the Microsoft Excel Online file below....
-
Consider the differential equation dr dx dt3 dt2 dx +10- +20- + 15x = f(x), dt where f(x) is the input and a function of the output x. If f(x) = 3e-5, linearize the differential equation for x near x...
-
The components of vectors A and B are given as follows: Ax=-4 Bx = 17 =- Ay=-10 By = - 3 What is the angle in degrees between the vector difference BA and the positive x-axis?
-
1. Negative impact of blockchain technology on taxation in the accounting profession. 2.what are the factors that influence an organisations work practice and expectations of an accounting...
-
Does the amount of water impact seed growth? Explain Does fertilizer alter the number of organisms in pond water? Explain
-
How can an effective information system positively impact an organization's efficiency and competitiveness?
-
Explain the significance and impact of a major historical event on the cultural, social, and economic aspects of the society during the time period. Analyze how this event shaped the course of...
-
You are monitoring your investments, which are broadly diversified across industry sectors, regions, and asset classes. The price of oil has dropped 40%, the price of copper has dropped 30%,...
-
The relationship described in question 7 does not always appear to hold. What factors, besides the number of firms in the market, might affect margins?
-
The term ( __________ ) describes the use of computer technology to provide decision-oriented information to managers. (a) data processing (b) electronic data processing (c) expert system (d)...
-
The statement "Amounts due to vendors should be accurately and promptly classified, summarized, and reported" might serve as a control objective in which of the following transaction cycles? (a)...
-
Which of the following indicates a satisfactory situation from the viewpoint of good internal control? (a) The cashier reports to the treasurer. (b) Payroll accounting reports to the controller. (c)...
![Mobile App Logo](https://dsd5zvtm8ll6.cloudfront.net/includes/images/mobile/finalLogo.png)
Study smarter with the SolutionInn App