Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Your friend knows that you have a solid understanding of financial matters and she asked you for a piece of advice. Due to the economic

Your friend knows that you have a solid understanding of financial matters and she asked you for a piece of advice.

Due to the economic down turn, her employer is offering a plan for early retirement where a, considerable, single payment can be made NOW (i.e., at Year 0).

Your friend was planing to retire in 5 years from now. Her current annual salary is $290000. If you are to show this in a cash flow diagram (CFD), this will appear in Year 1. Her salary will go up by 3% each of those 5 years. Five years from now, her salary will be $198122.3966 (i.e., in Year 5 in a CFD).

She has the option to invest as much of her income as she wants (even all of it!!!) in an account that offers an annual interest of 10%.

She is asking you to help her to find out what is the minimum early-retirement payment that she should receive from your employer that will give you the same economic value as if she stays working for the next five years until her regular retirement?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Fundamentals of Investing

Authors: Scott B. Smart, Lawrence J. Gitman, Michael D. Joehnk

12th edition

978-0133075403, 133075354, 9780133423938, 133075400, 013342393X, 978-0133075359

More Books

Students also viewed these Finance questions

Question

How is the NDAA used to shape defense policies indirectly?

Answered: 1 week ago