Question
Professor, In trying to apply my knowledge in the real world, I am trying to create a realistic retirement schedule. However, I am running into
Professor,
In trying to apply my knowledge in the real world, I am trying to create a realistic retirement schedule. However, I am running into difficulties using both a financial calculator as well as our equations from class in doing this.
I am trying to do the following: plan a retirement schedule between the ages of 22 and 68, in which I would deposit 25% of my income each year. The income starts at 80,000 with an annual growth rate of 5% and, to be realistic, assuming an interest rate of 2.5%. I will assume for simplicity that I receive my first salary ($80,000) when I turn 22, and my last salary when I turn 68. As soon as I receive a salary, I will save 25% of it.
However, this raises issues, as if I try to use the equation for the present value of a growing annuity with a 5% growth rate and 2.5% discount rate, r-g will yield a negative number. Also, I could not find online how to do this on my HP 10bII+ financial calculator and I don't want to manually enter 47 payments.
Do you know how I could overcome this obstacle?
- Briefly comment on Jimmys concern that if I try to use the equation for the present value of a growing annuity with a 5% growth rate and 2.5% discount rate, r-g will yield a negative number. (3 sentences at most)
- How much will Jimmy have in his retirement account when he turns 68, immediately after the last deposit?
- What single deposit made on Jimmys 22nd birthday would give the same account balance when he turns 68?
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