Gallery 6. (5 points) Garth Scholten decided to retire to San Diego in five years. What amount should Garth deposit so that he will be able to withdraw $40,000 at the end of each year for 20 years after he retires? Assume Garth can invest money at 6% interest compounded annually. This one is tricky - think about which you need to calculate first, the present value of the annuity that he will be drawing from when he retires or the present value of that amount which is what he needs to deposit today so it can grow to allow him to retire. Rate per period: 6.1:6 Number of periods: 2011= 20 40,000.11.46993 Table used: 15.2 Table value: 11.4699 458,796 rate: 61 #periods: 5 table: 12.3 valve .1413 458,796.0.7473 - 342,858.251 Garth should deposit $342,858.25 7. (10 points) You want to retire at the age of 60. Your goal is to receive annual annuity payments of $60,000 for 30 years. Your plan is to invest in the stock market and your financial advisor has told you to expect a 6% annual return throughout your retirement (keep it simple and assume it is annual). How much money must you have on deposit in your account when you reach age 60 to achieve this goal? Identify the following: > Rate per period: 61 Number of periods: 30 Table used: 13.2 > Table value: 13.7648 Solution for amount needed at age 60: 60.000 x 13.7648 = 825,888 825,888 0.06=49.553.28 You must have $49,553.28 in 9 your account before age 60 8. (10 points) Continuing with question 7... use your actual age to determine this. You need to determine the annual amount of a stream of payments that you must deposit in order to have the amount you determined in the previous question available for the stream of annuity payments? Your financial advisor has provided the following advice for the annual interest you can assume to earn based on the length of time before retirement (the closer you get to retirement the less risky your investments will be): 0-5 years of payments: 3% annual interest 6-10 years of payments: 4% annual interest 11-15 years of payments: 5% annual interest 16-20 years of payments: 6% annual interest 21-25 years of payments: 7% annual interest 26-30 years of payments: 8% annual interest 31-35 years of payments: 9% annual interest 36-40 years of payments: 10% annual interest 41-45 years of payments: 11% annual interest 46-50 years of payments: 12% annual interest > Amount needed for retirement (from question 7): Years to go until age 60 retirement: > Rate per period: 107. > Number of periods: 39 Table used: 13.2 025.888/397 88/39 = 21,176.62 39 Son Table value: 9.77 Monding to 40 Solution for amount that you need to deposit every year
