Your friend is celebrating her 30^th birthday today and wants to start saving for her anticipated retirement at age 65.

• She estimates that the annual spending needs would be $280,000 based on the current price level, and inflation rate is expected to be 2.5% + (0.1% x 8) per year.
• She wants to be able to make withdrawal for spending needs on each year for 24 years following her retirement; the first withdrawal will be on her 66^th birthday.
• In the year that she make her last withdrawal, she also want to be able to withdraw $3,800,000 as an inheritance for her children.
• Your friend intends to invest her money in a conservative fund, which offers 5% + (0.1% x 8) interest per year after retirement.
• Before retirement, your friend invests in stock funds, which offers 8% interest per year.
• Your friends employer provides pension benefit to your friend, which pays fixed amount of $500,000 annually to your friend for 24 years, since 66^th birthday.
• In addition, your friend expects to spend $100,000 for wedding on her 35^th birthday.
• She will get $390,000 annual salary in 31^st birthday, and the salary is expected to be increase at 3%. The last salary will be paid on her 65^th birthday.
• If she starts making these deposits on her 31^st birthday. What proportion of salary should her save each year?

1. Expected annual consumption need on 66^th birthday. (2 marks)
2. Present value of all consumption need on her 65^th birthday. (2 marks)
3. Present value of the inheritance on 65^th birthday. (2 marks)
4. Present value of the pension benefits on 65^th birthday. (2 marks)
5. Future value of the wedding expenses on 65^th birthday. (2 marks)
6. Total amount needed on 65^th birthday. (2 marks)
7. Annual saving need as a percentage of her salary. (3 marks)