PROBLEM 5:

Assume that this individual intends to save nothing for the first few years, which is common for young workers. (12 points)

Part 1: Use the RATE function in cell B14 to calculate what you would need the return to be in order to have the same amount of money at retirement as in Problem 4 (cell B10) given the delay entered in cell B13. Report this rate as an APR.

Part 2: Use the EFFECT function in cell B15 to convert this APR into an EAR.

Part 3: Use the IFERROR function in cell B14 and B15 to return the message "You never save any money! if the worker delays saving (cell B13) for more years than there are years until retirement (cell B3). In the same cells , B14 and B15, change the cells alignment formatting so the text shrinks to fit in the cell when/if the error message is displayed.

B14 4 x V fx =RATE(B11,B2,B10) A B D E F G H 1 J 1 2 3 4 $750.00 How much money do you save each period? 30 Years until your retirement 15 Years in you plan to be in retirement 4 How many periods in a year? 8.00% Expected return on your savings before retirement (this is an EAR) 6.00% Expected return on savings during retirement (this is an APR) 5 Problem 1 6 Problem 2 7 Problem 3 8 9 Problem 4 10 7.77% Expected annual return on savings before retirement (convert to an APR) $349,881.67 Amount you'll have in your account at retirement based on the savings amount in cell B2 $8,884.69 Amount you can spend each period during your retirement 11 12 13 Problem 5 14 #NUM! 5 Number of years you delay before starting to save for retirement If do delay starting to save, what would the interest rate need to be for you to hit the target amount in B10 ? (APR) Convert that APR to an EAR. you 15 16 17 $5,000.00 How much do you want to be able to spend each period during your retirement? 18 B14 4 x V fx =RATE(B11,B2,B10) A B D E F G H 1 J 1 2 3 4 $750.00 How much money do you save each period? 30 Years until your retirement 15 Years in you plan to be in retirement 4 How many periods in a year? 8.00% Expected return on your savings before retirement (this is an EAR) 6.00% Expected return on savings during retirement (this is an APR) 5 Problem 1 6 Problem 2 7 Problem 3 8 9 Problem 4 10 7.77% Expected annual return on savings before retirement (convert to an APR) $349,881.67 Amount you'll have in your account at retirement based on the savings amount in cell B2 $8,884.69 Amount you can spend each period during your retirement 11 12 13 Problem 5 14 #NUM! 5 Number of years you delay before starting to save for retirement If do delay starting to save, what would the interest rate need to be for you to hit the target amount in B10 ? (APR) Convert that APR to an EAR. you 15 16 17 $5,000.00 How much do you want to be able to spend each period during your retirement? 18