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After completing the Bachelor of Business (Accounting) degree, suppose you secure a permanent accountant position. You drafted a financial plan to retire in 30 years
After completing the Bachelor of Business (Accounting) degree, suppose you secure a permanent accountant position. You drafted a financial plan to retire in 30 years from now. So, you are thinking about creating a fund that will allow you to use $30,000 at the end of each year for 25 years after your retirement. The interest rates are expected to be 0.90% per annum during the first ten years and 1.25% per annum during the next twenty years of your pre-retirement period. The interest rates during the retirement period are expected to be 1.45% per annum. Required: a) To provide the 25-year, $30,000 a year annuity, calculate how much should be in the fund account when you retire in 30 years. (4 marks) b) How much will you need today as a single amount to provide the fund calculated in part (a) if you earn 0.95% per annum during the 30-year pre-retirement period? (3 marks) c) What effect would a change (increase/decrease) in the interest rates during and prior to retirement have on the values calculated in parts (a) and (b)? Explain why. (2 marks) d) (Using different interest rates and payments) Assume that the interest rates during the pre- retirement and post-retirement periods are 1.05% per annum and 1.35% per annum, respectively. If you want to fund a 25-year stream of $40,000 annual annuity payments, how much do you need to deposit annually? (deposits are made at the end-of-year for 30 years)
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