Q6)

Boris wants to retire and figures that today he could live on $20000 per year. Unfortunately, he is 20 years away from retirement and inflation is running at 1.50% (effective annual rate).

a) When he retires in 20 years, how much money will he need per year (to be equivalent to $20000 today)?

b) When he retires Boris wants to have savings that are 10 times his annual living costs. Interest rates are 5.0% compounded semi-annually. How much money does he need in his account today to be able to retire in 20 years?

c) Using your answer from b), what is the real rate of return on Boris savings?