Q3: Determining amount of investment capital (60 points)

Use the format in slide 11-8 of Chapter 11s PPT.

Dave is the manager in a local hotel. He is planning for an early retirement at the age of 55. His financial advisor informs him that in order to accomplish his plan of early retirement and remain financially stable for the rest of his life, he needs a million dollar in his pension account when he retires 30 years from today.

1. If Dave wants to achieve this financial goal using all his savings as lump-sum (and no further investment), how much is the required lump-sum? Pension accounts average annual return on investments is 7%.

2. Dave plans to make an initial investment of 25,000 for which the pension fund assures 7% average annual return. But, the pension fund offers only 6% average annual return for series of annual investments. What is the required annual investment?