1 answer

8. Problem 5.19 Click here to read the eBook: Future Value of an Ordinary Annuity Click...

Question:

8. Problem 5.19 Click here to read the eBook: Future Value of an Ordinary Annuity Click here to read the eBook: Finding Annui

8. Problem 5.19 Click here to read the eBook: Future Value of an Ordinary Annuity Click here to read the eBook: Finding Annuity Payments, Periods, and Interest Rates Problem Walk-Through FUTURE VALUE OF AN ANNUITY Your client is 33 years old. She wants to begin saving for retirement, with the first payment to come one year from now. She can save $2,000 per year, and you advise her to invest it in the stock market, which you expect to provide an average return of 7% in the future. a. If she follows your advice, how much money will she have at 65? Round your answer to the nearest cent. b. How much will she have at 70? Round your answer to the nearest cent. c. She expects to live for 20 years if she retires at 65 and for 15 years if she retires at 70. If her investments continue to earn the same rate, how much will she be able to withdraw at the end of each year after retirement at each retirement age? Round your answers to the nearest cent. Annual withdrawals if she retires at 65: $ Annual withdrawals if she retires at 70: $

Answers

Current Age = 33 years, Return from stock market = 7%, Annual saving = $ 2000

Answer a - How much she will have at the age of 65 - ?

We will have to use financial calculator to solve this

Assuming she is investing $ 2000 stock every year starting one year from now, so we will have to calculate future value

PMT ( Annual saving) = $ 2000
I/Y ( Return ) = 7%
N ( No of contribution till she reached age 65) = 65-33 = 32
Amount she will have at age of 65 i.e. future value = ?

PMT = 2000, I/Y = 7, N = 32, FV = ? ( Please insert in financial calculator )
FV = $ 220436.31

She will have $ 220,436.31 at the age of 65

Answer b - How much she will have at the age of 70
we will have to repeat same steps which we used for solving question a

PMT = $ 2000 ( Annual saving)
i/y = 7% ( Annual rate of return )
N = 70-33 = 37 ( No of saving or no of years left for reaching 70)
Amount she will have at age of 70 i.e. FV = ?

PMT = $2000, I/Y= 7, N = 37, FV=?

FV = $ 320,674.80

She will have $ 320,674.80 at the age of 70.

Answer c - We have to calculate how much she will able withdraw annually every year for 20 years if she retires at age of 65 or 70

Part 1 - How much she will be able to withdraw every year 20 years after retire at 65

Ans - Assuming first withdrawals start at age of 66 and withdrawal is made at end of every year then

No of withdrawals = 20 ( 20 years)
I/Y = 7 (annual rate of return)
PV = $ 220436.31 ( Amount she will have at age of 65 )
PMT = ? ( How much year withdrawal she can make)

N = 20, I/Y = 7, PV = 220436.31, PMT = ?
PMT = $ 20807.63

She will be able to withdraw every year $ 20,807.63 every year till 20 years if she retires at age of 65

Part 2 - How much she will be able to withdraw every year 20 years after retire at 70

Ans - Assuming first withdrawals start at age of 71 and withdrawal is made at end of every year then

No of withdrawals = 20 ( 20 years)
I/Y = 7 (annual rate of return)
PV = $ 320674.80 ( Amount she will have at age of 70 )
PMT = ? ( How much year withdrawal she can make)

N = 20, I/Y = 7, PV = 320674.80, PMT = ?
PMT = $ 30,269.43

She will be able to withdraw every year $ 30,269.43 every year till 20 years if she retires at age of 70


.

Similar Solved Questions

1 answer
How does the earth redistribute the uneven amount of solar energy recieved by earths surface
how does the earth redistribute the uneven amount of solar energy recieved by earths surface...
1 answer
I need help with this question, my topic area is : the effects of Nursing shortages...
I need help with this question, my topic area is : the effects of Nursing shortages Instructions Consider your topic, problem, likely solution and the five ethical theories presented below. Which one of these theories is most important or applicable to your topic area? Which is least connected or re...
1 answer
Incomplete manufacturing cost data for Black Company for the year are presented as follows for four...
Incomplete manufacturing cost data for Black Company for the year are presented as follows for four different situations: Direct Materials Used Labour Used Manufacturing Overhead Total manufacturing costs Work in Progress (1/1) Work in Progress (12/31) Cost of Goods Manufactured 1. $127,000 $16...
1 answer
Question 10 5 pts The most common method used by people who attempt suicide but do...
Question 10 5 pts The most common method used by people who attempt suicide but do not succeed is poisoning. True False Question 11 5 pts Suicide is most common in men who are: divorced single widowed All of these answers are correct...
1 answer
Express the speed of light (3.00x10^8 m/s) in m/s and mph
Express the speed of light (3.00x10^8 m/s) in m/s and mph...
1 answer
I'm making a Report in SQL and need to add Release_Year which is in the Film...
I'm making a Report in SQL and need to add Release_Year which is in the Film table in this query, how can I do that? Thank You Select Title, count(Rental_ID) as Rentals, (rental_rate*Count(rental_id)) As Revenue From Film join Inventory on Film.Film_ID = Inventory.Film_ID join rental on rental....
1 answer
It is just like that. No further information. *18 f(x) is a continuous even function for...
It is just like that. No further information. *18 f(x) is a continuous even function for which f(x) dx = 34 and 18 FX) dx = 8 Then the value of f(2x) dx is equal to -9/2 O 21/2 21 13/4 13/2 13...
1 answer
A physical therapist wants to determine the difference in the proportion of men and women who...
A physical therapist wants to determine the difference in the proportion of men and women who participate in regular sustained physical activity. What sample size should be obtained if he wishes the estimate to be within two percentage points with 95​% ​confidence, assuming that ​(...
1 answer
The fan blades on commercial jet engines must be replaced when wear on these parts indicates...
The fan blades on commercial jet engines must be replaced when wear on these parts indicates too much variability to pass inspection. If a single fan blade broke during operation, it could severely endanger a flight. A large engine contains thousands of fan blades, and safety regulations require tha...
1 answer
Please show work. Thank you Practice Problem 1 Cost Behavior Standard Com Neptune Rentals offers a...
Please show work. Thank you Practice Problem 1 Cost Behavior Standard Com Neptune Rentals offers a boat rental service. Consider the following costs of the company over the relevant range of 5,000 to 8,000 hours of operating time for its boats: Hours of Operating Time 6,000 7,000 5,000 8,000 Tota...
1 answer
The limit of the periodic number (0.123412341234....), is equal to: a) (97/312), b) (62/259), c) (233/1200),...
The limit of the periodic number (0.123412341234....), is equal to: a) (97/312), b) (62/259), c) (233/1200), d) (668/4095), The The limit of the periodic number (0.9BFFFF....)is is equal to: a) (9/15), b) 1 c) (0.A), d) (0.9C)...
1 answer
(10 pts) MRI (magnetic resonance imaging) use the nuclear magnetic resonance phenomenon and gradi...
(10 pts) MRI (magnetic resonance imaging) use the nuclear magnetic resonance phenomenon and gradient coils (x, y, and z direction) to perform spatial localization. 3a) Find the Larmor frequencies of hydrogen (H) for slice a, b, and c in the following figure. 3b) What is the maximum bandwidth of an R...
1 answer
How do you round 125679 into 3 significant figures?
How do you round 125679 into 3 significant figures?...
1 answer
Nment MESSAGE MY INSTRUCTOR 1BACK NEXT FULL SCREEN PRINTER VERSION Question 2 Sorenson Inc. has sales...
nment MESSAGE MY INSTRUCTOR 1BACK NEXT FULL SCREEN PRINTER VERSION Question 2 Sorenson Inc. has sales of $3,322,000, a gross profit margin of 22.77 percent, and inventory of $946,000. What are the company's inventory turnover ratio and days' sales in inventory? (Use 365 days for calculation....
1 answer
If output is described by the production function , then the production function has: (a) degree...
If output is described by the production function , then the production function has: (a) degree of returns to scale that cannot be determined from the information given. (b) diminishing returns to scale (c) increasing returns to scale (d) constant returns to scale (e) None of the above...
1 answer
Find an equation of the the line satisfying the given conditions
Find an equation of the the line satisfying the given conditions. Through (-3, -2); perpendicular to -7x + 9y = -42...