NAME PART IlI (continued) 6) Stuart Allen realized at age 60 that he had not yet
ID: 2572596 • Letter: N
Question
NAME PART IlI (continued) 6) Stuart Allen realized at age 60 that he had not yet started to plan for his retirement. He plans to retire at age 71. He wants to accumulate a fund that will allow him to remove $100,000 a year, for 20 years, with the first payment starting on his 71st birthday. To prepare for this, Stuart plans to make annual contributions into a "retirement fund" that has an annual rate of return of 8%, compounded annually. (The fund will also earn a rate of 8% during the years of his retirement.) REQUIRED: Determine the amount of each annual contribution into the retirement fund, if the first contribution occurs on his 60th birthday and the last contribution occurs on his 70th birthday. (9 points) Amount of each annual contribution: $Explanation / Answer
For determining the annual contribution first we have to calculate, Fund value at retirement. Financial Calculator Keys Rate 8% I/Y so using PVA ordinary formula, NPER 20 N PMT 100000 PMT PVA $981,814.74 Press CPT + PV PV(0.08,20,-100000) Since value of retirement fund should be $981,814.74 taking it as FV we will calculate annual contribution using PMT formula Annual Contribution $54,614.67 Ans PMT(0.08,11,,-981814.74,1) I/Y N FV PRESS 2ND PMT and after that CPT PMT Rate NPER FV Beginning of period 8% 11 $981,814.74 Yes
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