Caulfield mogul Monty Buxton, age 40, would like to retire at age 60. Once Mr. B

Question

Caulfield mogul Monty Buxton, age 40, would like to retire at age 60. Once Mr. Buxton retires, he wants to withdraw $1.2 billion at the beginning of each year for 10 years from a special offshore account which will pay 27% annually. In order to fund his retirement, Mr. Buxton will make 20 equal end-of-the-year deposits in this same special account which will pay 27% annually. How much money will Mr. Buxton need at age 60, and how large of an annual deposit must he make to fund this retirement account? Caulfield mogul Monty Buxton, age 40, would like to retire at age 60. Once Mr. Buxton retires, he wants to withdraw $1.2 billion at the beginning of each year for 10 years from a special offshore account which will pay 27% annually. In order to fund his retirement, Mr. Buxton will make 20 equal end-of-the-year deposits in this same special account which will pay 27% annually. How much money will Mr. Buxton need at age 60, and how large of an annual deposit must he make to fund this retirement account? In order to fund his retirement, Mr. Buxton will make 20 equal end-of-the-year deposits in this same special account which will pay 27% annually. How much money will Mr. Buxton need at age 60, and how large of an annual deposit must he make to fund this retirement account?

Explanation / Answer

To withdraw 1200 mn( 1.2 billion), @27% annually, for 10 years at the beginning of the year

we need PV(27%, 10, 1200, 1) = $ 5127.33

Now to create $5127.33, we will calculate the annual deposits amount to be made to fund the retirement account

FV = 5127.33

PV =0

Rate=27%

N=20 years

PMT = 11.72 million

So we need $5127.33 million at the age of 60 and make an annual deposit of 11.72 million to fund the retirement account.

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