Growing Annuity problem, please provide step by step calculations. Assume that y
ID: 2618090 • Letter: G
Question
Growing Annuity problem, please provide step by step calculations.
Assume that you plan to retire in 40 years and that you estimate you will need an income of $6,000 at the beginning of each month for 30 years, following your retirement. You also plan to donate $1,000,000 to the GSU College of Business to endow a scholarship in the name of your favorite finance professor. You will make this endowment exactly 5 years after you retire. Assume that you will earn 9.00 percent during your working years and 4.50 percent after you retire. You estimate that the average inflation rate will be 2.75% after you retire. You also expect that your salary will increase at an average rate of 3% over your career. What percentage of your annual salary will you be required to save in order to meet your retirement goals? What percentage of your MONTHLY salary will you be required to save in order to meet your retirement goal? Note that TVM prevents you from simply using the same rate or dividing an amount by 12. (You'll need to use Excel for this one.) 1. 2.Explanation / Answer
The growing Annuity problem formula in excel
As the annuity is required to recieve at beginning of each month for 30 years
Using formula = FV(Rate,Nper,Pmt,Pv,Type)
As salary detail is not given in the question , let assume annual salary =$ 100,000
Answer A) Percentage to meet retirement goal
= 6738/ 100,000 =6.738%
Answer B) Monthly percentage
Monthly salary = $ 100000 /12 = $ 8333.33 = $ 8334
Monthly saving = 6738 /12 = $ 561.5 = 6.738%
Periodic payment $6,000.00 Donation $1,000,000.00 Growth rate per period (inflation rate) 2.75% 0.23% Rate per period 4.50% Rate per period 4.50% 0.38% Time 5 yrs Number of period 359 Invesment value $802,451.05 Retrirement corpus for annuity $1,673,060.02 Annuity for 1st month $6,000.00 Invesment value for Donation $802,451.05 Retirement corpus $2,481,511.06Related Questions
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