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PVAnnuity=Cr1(1(1+r)N1) C=PVAnnuityr1(1(1+r)N1) 8. (10 points) You just turned 22 years old, received your bachelor's degree, and accepted your first job (well done!). Now you must
PVAnnuity=Cr1(1(1+r)N1) C=PVAnnuityr1(1(1+r)N1) 8. (10 points) You just turned 22 years old, received your bachelor's degree, and accepted your first job (well done!). Now you must decide how much money to put into your retirement plan. The plan works as follows: Every dollar in the plan earns 7\% per year (nominal rate of return). You cannot make withdrawals until you retire on your 65th birthday. After that, you can make withdrawals as you see fit. You decide that you will plan to live to 100 and work until you turn 65 . You estimate inflation will be 3% per year. To live comfortably in retirement, you will need $100,000 per year (real dollars), starting at the end of the first year of retirement and ending on your 100th birthday. You will contribute the same amount to the plan at the end of every year that you work. a. How much do you need to contribute each year to fund your retirement (real dollars)? b. Stretch Problem: What is the age 65 amount that you have calculated in real dollars worth in terms of nominal dollars? Hint: Use the formula below where 'Nominal $ ' is nominal dollars at time=t, 'Real $ ' is real dollars at time =t, 'Infl' is inflation rate, and ' N ' is the number of years of inflation. Nominal $= Real $(1+lnfl)N
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