Sam is currently 27 years old. He works for CGI Inc., and earns $50,000 a year. He anticipates that his salary will grow at a rate of 4% per year. He has recently received a $100,000 inheritance. He is evaluating two different options in terms of how to best utilize the inheritance and savings from his salary. The goal is to have as large an amount of savings as possible when he retires. He anticipates to retire at age 65.

Option 1: He will invest the $100,000 (inheritance) in a risk-free fund (today). The yearly interest rate that he will receive is 4% (compounded on a yearly basis). In addition, he plans to save 5% of his salary every year, and deposit it in a mutual fund every year. He is paid on a bi-weekly basis, but he will deposit his savings in the mutual fund at the end of each year. He expects to earn a return of 7% per year on this investment (compounded on a yearly basis). He will make the first deposit a year from today. His salary this year will be 4% more than $50,000 as the most recent yearly salary he has received is $50,000 per year. He will make his last deposit when he is 65 years old?

Option 2: He can use part of the inheritance to complete an MBA program. It will take Sam 2 years to complete the MBA program (assume that if he decides to pursue the MBA program, he will start the program today). The total cost of the program will be $60,000. Sam will pay the total cost of the program at the beginning of the program (i.e., today). He will invest the rest of the inheritance in the risk-free fund. The yearly interest rate that he will receive is 4% (compounded annually).
Sam expects that after he finishes the MBA program, he will receive a promotion at CGI Inc. within a year, and his new salary will be $80,000 (he will receive $80,000 during year three).

Sam expects that this salary will grow at a rate of 5% per year. Once Sam's salary becomes $80,000, he will save 6% of his salary, and deposit it in the mutual fund every year. He expects to earn a return of 7% per year on this investment (compounded on a yearly basis). He will make the first deposit three years from today. He will make his last deposit when he is 65 years old?

Questions:
1.   If Sam chooses option 1, how much money he will have in his savings when he retires at the age of 65? 

2.   If Sam Chooses option 2, how much money will he have in his savings when he retires at the age of 65?

3.   Which option would you advise Sam to choose?

4.   When Sam retires, he will combine all savings (amount he has when he is 65 years old) into an annuity. The annuity will last for 30 years. Based on your answer to question 3, how much can he withdraw every year in retirement (starting one year after the start of his retirement) so that he will exhaust his savings with the 30th withdrawal? The savings will continue to earn 7% (compounded annually) until they are fully withdrawn?