You are planning to save for retirement over the next 25 years. To do this, you

Question

You are planning to save for retirement over the next 25 years. To do this, you will invest $700 per month in a stock account and $300 per month in a bond account. The return of the stock account is expected to be an APR of 9 percent, and the bond account will earn an APR of 5 percent. When you retire, you will combine your money into an account with an APR of 6 percent. All interest rates are compounded monthly. How much can you withdraw each month from your account assuming a withdrawal period of 20 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Withdrawal $ 6910.13 (incorrect)per month

Explanation / Answer

Monthly Withdrawl $       6,902.45 per month Working: a. Future Value of annuity of 1 @ 9% = (((1+i)^n)-1)/i Where, = (((1+0.0075)^300)-1)/0.0075 i 9%/12 =                 0.0075 = 1121.1219 n 25*12 = 300 b. Future Value of Stock Investment = Monthly investment x Future Value of annuity of 1 = $           700.00 x 1121.1219 = $ 7,84,785.36 c. Future Value of annuity of 1 @ 5% = (((1+i)^n)-1)/i Where, = (((1+0.004167)^300)-1)/0.004167 i 5%/12 =            0.004167 =          595.5453 n 25*12 = 300 d. Future Value of Bonds Investment = Monthly investment x Future Value of annuity of 1 = $           300.00 x 595.5453 = $ 1,78,663.58 e. Combined Future Value of Investment = $ 7,84,785.36 + $ 1,78,663.58 = $ 9,63,448.94 f. Present value of annuity of 1 @ 6% = (1-(1+i)^-n)/i Where, = (1-(1+0.005)^-240)/0.005 i 6%/12 = 0.005 =          139.5808 n 20*12 = 240 g. Amount of monthly withdrawl = Total Accumulated amount at the beginning of withdrawl period/Present value of annuity of 1 = $ 9,63,448.94 /          139.5808 =           6,902.45

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.