Question
1a) Today is your 22nd birthday. Suppose you decide to start saving $15,000 annually for retirement, with the first deposit being made one year from
1a) Today is your 22nd birthday. Suppose you decide to start saving $15,000 annually for retirement, with the first deposit being made one year from today. You expect to earn a return of 9 percent per year on this money. Considering that you plan to retire 28 years from today and that you expect to live for 30 years after retirement, how much can you spend each year after you retire? You will be able to withdraw your first amount at the end of your first retirement year.
1b) Suppose that you just had your first baby, Oprah, and you wish to ensure that enough money will be available to pay for Oprah's college education. Tuition and other fees today add up to $12,500 per year. Tuition and other costs are expected to increase at a rate of 4 percent per year.
Assuming that all of Oprah's college savings are invested in an account paying 7 percent interest, then the amount of money she will need to have available at age 18 to pay for all four years of her undergraduate education is closest to...?
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