5. (30 points) You are planning to save towards your retirement with increasing monthly payments (first...
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5. (30 points) You are planning to save towards your retirement with increasing monthly payments (first payment is $2,000, and monthly growth rate is 0.1%) for 40 years. The first payment will come in one month. You save into a retirement account paying an APR of 12%, compounded monthly. You plan to retire immediately after the last payment, and then, starting from the following month, withdraw a constant amount of money from the account, until it is empty. The rate on your account is still 12% APR, compounded monthly. You believe you are going to live 30 years after retiring. (a) (8 points) How much can you withdraw from your account every month during the retirement? (b) (7 points) Now suppose that you want to leave your kids an inheritance of $10,000,000. That is, you still want to withdraw a constant amount of money from your account every month for 30 years. However, you want also to have $10,000,000 in your account by the end of year 30. Suppose that your savings for the retirement do not change. What is a new regular monthly payment of the retirement account? (c) (7 points) Suppose now that you decided not to leave any inheritance (so that you follow the repayment scheme of part a). However, at the end of year 20 of your retirement you suddenly 5. (30 points) You are planning to save towards your retirement with increasing monthly payments (first payment is $2,000, and monthly growth rate is 0.1%) for 40 years. The first payment will come in one month. You save into a retirement account paying an APR of 12%, compounded monthly. You plan to retire immediately after the last payment, and then, starting from the following month, withdraw a constant amount of money from the account, until it is empty. The rate on your account is still 12% APR, compounded monthly. You believe you are going to live 30 years after retiring. (a) (8 points) How much can you withdraw from your account every month during the retirement? (b) (7 points) Now suppose that you want to leave your kids an inheritance of $10,000,000. That is, you still want to withdraw a constant amount of money from your account every month for 30 years. However, you want also to have $10,000,000 in your account by the end of year 30. Suppose that your savings for the retirement do not change. What is a new regular monthly payment of the retirement account? (c) (7 points) Suppose now that you decided not to leave any inheritance (so that you follow the repayment scheme of part a). However, at the end of year 20 of your retirement you suddenly
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Answer rating: 100% (QA)
a To find out how much can be withdrawn every month during retirement we need to calculate the future value of the savings We know that the monthly payment is 2000 and the monthly growth rate is 01 co... View the full answer
Related Book For
Corporate Finance
ISBN: 978-0071339575
7th Canadian Edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Gordon Ro
Posted Date:
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