Question
Today is Omegas 20th birthday and she is planning for her retirement at age 65. She intends making constant, monthly deposits, each $400 into an
Today is Omegas 20th birthday and she is planning for her retirement at age 65. She intends making constant, monthly deposits, each $400 into an account earning J4 = 5.6%, with her first deposit occurring today. The last of these deposits will occur on her 35th birthday. Thereafter she plans to increase her monthly deposits by 0.22% each month with the first of these increased deposits occurring one month after her 35th birthday. She expects interest rates to rise to J12 = 6.4% and to stay there indefinitely. She plans it so that her last deposit will occur one month before her 65th birthday. a. How much will she have in the bank on her 65th birthday? [10] She then plans to make annual withdrawals each having the same purchasing power as $36,000 has today. The first of these withdrawals will be on her 66th birthday, and the last will be on her 85th birthday. Assume an inflation rate of an EAR of 2.1%. b. How much will she withdraw on her 66th birthday? [2] c. What will the purchasing power (in todays terms) be of the withdrawal on her 83rd birthday? [1] d. How much will be left in the bank account after the withdrawal on her 85th birthday?
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