A) Andrea, a self-employed individual, wishes to accumulate a retirement fund of

Question

A) Andrea, a self-employed individual, wishes to accumulate a retirement fund of $900,000. How much should she deposit each month into her retirement account, which pays interest at a rate of 4.5%/year compounded monthly, to reach her goal upon retirement 35 years from now? (Round your answer to the nearest cent.)

B) Carl is the beneficiary of a $20,000 trust fund set up for him by his grandparents. Under the terms of the trust, he is to receive equal installments from this fund at the end of each year over an 8-year period. If the fund earns interest at the rate of 9%/year compounded annually, what amount will he receive each year? (Round your answer to the nearest cent.)

Explanation / Answer

A) Future Value = 900000 ; Interest Monthly = 4.5 / 12 = 0.375% , Months = 35 *12 = 420 months

We need to calculate the monthly annuity.

So , Annuity * FVIFA(420 months, 0.375%) = 900000

Or Annuity = 900000 / 1021.558 = $ 881.00

B) Present Value = 20000 ; Years = 8 ; Rate = 9%

Let the annuity be X

So, X * PVIFA( 8 yr, 9%) = 20000

X = 20000/ 5.534 = 3614.02

Annuity Withdrawal = $3614.02

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