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Recitation 11

Recitation 11. Lump Sum Goal.

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Recitation 11

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  1. Recitation 11

  2. Lump Sum Goal • You decide that you want to save 1,144,355 dollars for retirement. Assuming that you are 25 years old today, will retire at the age of 65, and can earn a 11 percent annual interest rate on your deposits, how much must you deposit each year to meet your retirement goal? (your first deposit will be one year from now and your last deposit will be 40 years from today, i.e. 40 deposits)

  3. Solution

  4. Answer • 1 966.834

  5. Savings and Withdrawals • You believe that you will need 26,414 dollars a year for 5 years in retirement. If you are 30 today, how much must you save each year to meet your retirement goal if you plan to retire at 65? (Assume a 9 percent annual interest rate and that your 1st deposit will be 1 year from now and that your 1st withdrawal will be 36 years from today)

  6. Solution

  7. Solution continued • And if we save correctly, the future value of our deposits has to equal the present value of our withdrawals, so we can substitute the PVA above as the FVA for our deposits

  8. Answer • 476. 291

  9. How much is left? • You are 40 years old today and decide to save 6,111 dollars per year for 25 years for retirement (your first deposit will be 1 year from now and your last deposit will be 25 years from now). You then plan to withdraw 26,073 dollars per year for 5 years (your first withdrawal will be 26 years from today and your last withdrawal will be 30 years from today). You want to know how much money will be left in your account when you are 70 years old. Assuming a 9 percent interest rate, how much will be left in the account when you are 70?

  10. Solution

  11. Solution continued • 65 • 70

  12. Solution Continued

  13. Answer • 640 363.44

  14. Practice problem #4 • You decide that you want to save 989,502 dollars for retirement. Assuming that you are 25 years old today, will retire at the age of 65, and can earn a 10 percent annual interest rate on your deposits, how much must you deposit each year to meet your retirement goal? (your first deposit will be one year from now and your last deposit will be 40 years from today, i.e. 40 deposits)

  15. Lump Sum

  16. Answer

  17. Practice problems All the following practice problems don’t show the steps, but just answers.

  18. You believe that you will need 69,049 dollars a year for 10 years in retirement. If you are 20 today, how much must you save each year to meet your retirement goal if you plan to retire at 65? (Assume a 5 percent annual interest rate and that your 1st deposit will be 1 year from now and that your 1st withdrawal will be 46 years from today)

  19. Answer • 3,338.62

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