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You sit on the board of directors of a local nonprofit corporation. At its last meeting, the board decided to begin to fund a very

You sit on the board of directors of a local nonprofit corporation. At its last meeting, the board decided to begin to fund a very modest retirement pension for the organization's custodian. The details of the plan are as follows.

  • The custodian is thirty-nine years old; the plan will begin to make annual payments to him twenty-six years from the date when fund­ing for the plan You assume the custodian will continue his employment with the corporation.
  • When payments begin, the custodian will receive a single cash pay­ment each year for fifteen years. The first payment will be $5,000, and each succeeding payment will increase by 4 percent. Payments stop after the fifteenth payment.
  • Money paid into the fund collects interest at a constant 8 percent an­nual rate, and there is no tax liability on the account.
  • The annual contributions that the corporation makes to the fund will also increase at a 4 percent rate and will also earn 8 percent interest until withdrawn.

As chair of the personnel committee, you are responsible for determin­ing the initial amount to fund this retirement stipend. If your figures are correct, all succeeding annual budget amounts will simply be increased by 4 percent from the previous year's budget. 

How much do you need to deposit now to get the plan in motion?

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