7 (of 7 7. 2.16 points annual annuity of $27,000 for 17 years after retirement.

Question

7 (of 7 7. 2.16 points annual annuity of $27,000 for 17 years after retirement. During the period befone You wish to retire in 12 years, at which time you want to have accumulated enough money to recelve an a retirement you can eam 8 percent annually, while after retirement you can eam 10 percent on your money What annual contributions to the retirement fund will aliow you to answer using the formula and financial calculator methods. ( the $27,000 annuity? Use Appendix C and Appendix D for an approximate answer, but calculate your final Do not round intermediate calculations. Round your final answer to 2 decimal pl computed, but other factors such as yield (rate of return) can be determined 7

Explanation / Answer

Solution:

Annuity required for 17 years = $27,000

after retirement earning rate = 10%

Therefore fund required after 12 years = Present value of annuity discounted at 10%

=$27,000 * cumulative PV Factor at 10% for 17 periods

= $27,000 * 8.021553 = $216,582

It is assumed that annual contribution to be made is at beginning of year.

Therefore let annual contribution required = a

Interest rate in first 12 years = 8%

Now future value of a = $216,582

a * cumulative FV factor for annuity due for 12 periods at 8% = $216,582

a * 20.495297 = $216,582

a = $10,567

Therefore required annual contribution = $10,567

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