Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

(Comprehensive problem)Having just inherited a large sum of money, you are trying to determine how much you should save for retirement and how much you

(Comprehensive problem)Having just inherited a large sum of money, you are trying to determine how much you should save for retirement and how much you can spend now. For retirement, you will deposit today (January 1 2016, ) a lump sum in a bank account paying 9 percent compounded annually. You don't plan on touching this deposit until you retire in 5 years (January 1, 2021 ), and you plan on living for 20 additional years. During your retirement, you would like to receive income of $47,500 per year to be received the first day of each year, with the first payment on January 1 2021, and the last payment on January 1 2040, . Complicating this objective is your desire to have one final 3-year fling during which time you'd like to track down all the original members of Hey Dude and Saved by the Bell and get their autographs. To finance this, you want to receive $237,500 on January 1, 2036, and nothing on January 1 2037, and January 1, 2038, because you will be on the road. In addition, after you pass on (January 1, 2041 ), you would like to have a total of $95,000 to leave to your children.

a.How much must you deposit in the bank at 9 percent interest on January 1, 2016 , to achieve your goal? (Use a timeline to answer this question. Keep in mind that the last second of December 31st is equivalent to the first second of January 1st.)

b.What problem might arise from this analysis and its assumptions?

image text in transcribed

(Comprehensive problem) Having just inherited a large sum of money, you are trying to determine how much you should save for retirement and how much you can spend now. For retirement, you will deposit today (January 1, 2016) a lump sum in a bank account paying 9 percent compounded annually. You don't plan on touching this deposit until you retire in 5 years (January 1, 2021), and you plan on living for 20 additional years. During your retirement, you would like to receive income of $47,500 per year to be received the first day of each year, with the first payment on January 1 , 2021 and the last payment on January 1, 2040. Complicating this objective is your desire to have one final 3-year fling during which time you'd like to track down all the original members of Hey Dude and Saved by the Bell and get their autographs. To finance this, you want to receive $237,500 on January 1, 2036, and nothing on January 1, 2037 and January 1, 2038, because you will be on the road. In addition, after you pass on (January 1, 2041), you would like to have a total of $95,000 to leave to your children. a. How much must you deposit in the bank at 9 percent interest on January 1, 2016, to achieve your goal? (Use a timeline to answer this question. Keep in mind that the last second of December 31 st is equivalent to the first second of January 1st.) b. What problem might arise from this analysis and its assumptions

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Management Theory And Practice

Authors: Prasanna Chandra

7th Edition

0070656657, 978-0070656659

More Books

Students also viewed these Finance questions

Question

b. Where did they come from?

Answered: 1 week ago