BUS $622-$ Case Study Week $4$

General

This case is a classic retirement problem. The case details are below. You need to use the excel template provided to complete the case and submit your solution. The template is in Engage and has been set up for ease of completion and grading. This is a group assignment and will be completed with your group members. Only $1$ submission per group.

Case Study Information

A friend is celebrating her birthday and wants to start saving for her anticipated retirement. She has the following years to retirement and retirement spending goals.

Years until retirement: $30$

Amount to withdraw each year: $$90,000$

Years to withdraw in retirement: $20$

Interest rate: $8\mathrm{.}0\%$

Because your friend is planning ahead, the first withdrawal will not take place until one year after she retires. She wants to make equal annual deposits into her account for her retirement fund.

Required:

$1)$ If she starts making these deposits in one year and makes her last deposit on the day she retires, what amount must she deposit annually to be able to make the desired withdrawals at retirement?

$2)$ Suppose your friend just inherited a large sum of money. Rather than making equal annual payments, she decided to make one lump$-$sum deposit today to cover her retirement needs. What amount does she have to deposit today?

$3)$ Suppose your friend$$s employer will contribute to the account each year as part of the company$$s profit$-$sharing plan. In addition, your friend expects a distribution from a family trust several years from now. What amount must she deposit annually now to be able to make the desired withdrawals at retirement?

Employer$$s annual contribution: $$1,500$

Years until trust fund distribution: $20$

Amount of trust fund distribution: $$25,000$

$4)$ Go back and assume the basic information from part $1$ above$---$no inheritance and no employer contributions. Now assume that the inflation rate is $2\mathrm{.}0\%.$ Consequently, when your friend retires she will want to withdraw $$90,000$ each year in today$$s dollars. What amount is she planning to receive in year $31($the end of her first year of retirement$)?$

$5)$ How much does she need to have in retirement at the end of year $30$ in order to receive her retirement payments assuming that these retirement payments continue to increase at $2\mathrm{.}0\%$ per year throughout her retirement?

$6)$ If she starts making deposit amounts in one year and makes equal deposit amounts each year and makes her last deposit on the day she retires, what amount must she deposit annually to be able to make the desired withdrawals at retirement?

$7)$ If she starts making deposit amounts in one year and her deposits increase at the inflation rate of $2\mathrm{.}0\%$ each year until she makes her last deposit on the day she retires, what amount must she initially deposit to be able to make the desired withdrawals at retirement?

Grading

Your response will be graded based on the accuracy of the calculations and completion of the solution. You need to show your work and computations within excel. Use the formula functions within excel for addition, subtraction, multiplication and division computations. I should be able to follow your calculations by clicking in any of the cells. If you do not show your work, you will receive a ZERO on the assignment. You can refer to the video in Engage on the Case Study page in week $4$ for additional information on how to show your work in excel. Showing your work does not mean typing each individual formula. You need to use the appropriate formula functions within excel. Any written responses will be graded based on your ability to fully answer the question concisely, and without any spelling or grammatical errors $($you should use spell check in Excel$).$