Case 4: Jim Marsh, a lawyer contemplating retirement on his 65th birthday, decid

Question

Case 4: Jim Marsh, a lawyer contemplating retirement on his 65th birthday, decides to create a fund on an 8% basis, which will enable him to withdraw $50,000 per year beginning June 30, 2015, and ending June 30, 2019. To provide this fund, he intends to make equal contributions on June 30 of each of the years 2010 through 2014. (a) How much must the balance of the fund equal after the last contribution on June 30, 2014 in order for him to satisfy his objective? (b) What is each of his contributions to the fund?

Explanation / Answer

Stephen Bosworth, a super salesman contemplating retirement on his 55th birthday, decides to create a fund on an 8% basis that will enable him to withdraw $25,000 per year on June 30th, beginning in 2014 and continuing through 2017. To develop this fund, Stephen intends to make equal contributions on June 30th of each of the years 2010-2013. Instructions a.) How much must the balance of the fund equal on June 30, 2013, in order for Stephen Bosworth to satisfy his objective? b.) What are each of Stephen's contributions to the fund? a.) How much must the balance of the fund equal on June 30, 2013, in order for Stephen Bosworth to satisfy his objective? You need to calculate the present value of four withdrawals of $25,000, discounted back at 8%. $82,803.17 b.) What are each of Stephen's contributions to the fund? You need to calculate what each of four payments will be to accumulate $82,803.17. One payment per year at 8% interest. $18,375.75

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