Question 1

You have just had your 30th birthday. You have two children. One will go to college 10 years from now and require four beginning-of-year payments for college expenses of $10,000, $11,000, $12,000 and $13,000. The second child will go to college 15 years from now and require four beginning-of-year payments for college expenses of $15,000, $16,000, $17,000 and $18,000. In addition, you plan to retire in 30 years. You want to be able to withdraw $50,000 per year (at the end of each year) from an account throughout your retirement. You expect to live 20 years beyond retirement. The first withdrawal will occur on your 61st birthday. In addition to that, you are planning for buying a cabin in the mountains 8 years from now at an estimated cost of $80,000. You can afford to save only $2,000 per year at the end of each year for the first 12 years.

Required:

What equal, annual, end-of-year amount must you save for year 13 to 30 to meet these goals, if all savings earn a 13 per cent annual rate of return?

(20 marks)