You wish to retire in 11 years, at which time you want to have accumulated enoug

Question

You wish to retire in 11 years, at which time you want to have accumulated enough money to receive an annual annuity of $14,000 fo 16 years after retirement. During the period before retirement you can earn 10 percent annually, while after retirement you can eam 1 percent on your money What annual contributions to the retirement fund will allow you to receive the $14,000 annuity? Use Appendix C and Appendix D for a approximate answer, but calculate your final answer using the formula and financial calculator methods. (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Annual contribution

Explanation / Answer

Answer:

Determine the present value of an annuity during retirement

PVA =A * PVIFA (11%,16 years)

Present Value Annuity   = $14000 * P.V.F(11%, 16 yrs) = 14000*7.379 = $1,03,306

to determine the annual deposit into an account earning 105 that is necessary to accumulate $ 1,03,306 after 11 years , use the future value of an annuity table.

A   = FVA /FVIFA (10%, 11 years)

So, Annual Contribution = 103306 / 18.5311 (FV, 10% , 11 years)

= $ 5574.73 annual contribution.

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