You plan to retire in 5 years (in Year 5). You wish to have $500,000 annual income for the next 15 years (from Year 6 till Year 20). After that you wish to bequeath your estate to your alma mater for an endowed chair in Finance. The chair will pay the occupant $150,000 in its first year (in Year 21) and increase the amount by 5% each year. If you wish to put aside a fixed amount each year towards retirement and the endowment, starting in Year 1 till (including) Year 5, what should that amount be? Assume that investments earn 8% per year. Ignore tax effects.

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To determine the fixed amount you need to set aside each year for both retirement income and the end View the full answer