7. Jenna expects her salary to grow regularly. While there are no guarantees, she believes an increase of 3.25% a year is reasonable. She plans to save $2,750 the first year, and then increase the amount she saves by 3.25% each year as her salary grows. Unfortunately, prices will also grow due to inflation. Suppose Jenna assumes there will be 2.75% inflation every year. In retirement, she will need to increase her withdrawals each year to keep up with inflation.

a. How much money will Jenna have at her retirement?

b. How much can she withdraw at the end of the first year of her retirement in todays dollars?

Jenna's retirement income if she sells her T-bonds with face value identified below and invests the proceeds in the stock market at a return identified below and saves an additional amount identified below at the end of each year in a stock fund for 42 years. Jenna wants those retirement savings to last to the age specified in the data table below.

T-Bond Face Value Coupon Rate Current YTM Remaining Term on T-Bond in years Annual Investment in stock fund Annual Return on Stock Fund Jenna's current age Desired retirement age Planned life expectancy (age in years) Jenna's expected annual salary increases for $20,000 4.50% 3.00% 22 $2,750.00 6.25% 22 63 ! 3.25% Q7 Inflation Rate for Q7 2.7596 Question 7 (12 Hint: Cash flow 1 = Jenna's first year of saving given in Question 7 Time Period Cash Flow 21 3 4 5 6 7 Return on stock fund (r, 2) Inflation rate (g) Step 2: Find FV at Retirement Step 3: Jenna's first retirement withdrawal Step 4 Value of first retirment withdrawal in today's $ T-Bond Face Value Coupon Rate Current YTM Remaining Term on T-Bond in years Annual Investment in stock fund Annual Return on Stock Fund Jenna's current age Desired retirement age Planned life expectancy (age in years) Jenna's expected annual salary increases for $20,000 4.50% 3.00% 22 $2,750.00 6.25% 22 63 ! 3.25% Q7 Inflation Rate for Q7 2.7596 Question 7 (12 Hint: Cash flow 1 = Jenna's first year of saving given in Question 7 Time Period Cash Flow 21 3 4 5 6 7 Return on stock fund (r, 2) Inflation rate (g) Step 2: Find FV at Retirement Step 3: Jenna's first retirement withdrawal Step 4 Value of first retirment withdrawal in today's $