Assume the following regarding a growing annuity problem: Your salary at the end

Question

Assume the following regarding a growing annuity problem: Your salary at the end of the last year that you work is $90,000. You would like your income stream to begin at the end of your first year of retirement with a payment equal to 70% of your last working year's salary. (Assume all ammounts are "end-of-year" payments). You plan to be retired for 25 years. You would like your retirement income to grow at a constant rate equal to 3.5% (to compensate for expected inflation).

Using a discount rate of 8%, what is the PV at the beginning of your first year of retirement (one period prior to the first retirement payment) of your projected 25 year retirement income stream? Show your calculation.

A. 960,730

B. 916,893

C. 672,511

D. 211,573

E. 3,308,543

F. 483,107

Explanation / Answer

Anser B

Income last year 90000 Income per year after retirement 63000 Period 25 Discount 8% Year 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 CF@GROWTH 3.5% 63000 65205 67487.18 69849.23 72293.95 74824.24 77443.09 80153.59 82958.97 85862.53 88867.72 91978.09 95197.33 98529.23 101977.8 105547 109241.1 113064.6 117021.8 121117.6 125356.7 129744.2 134285.2 138985.2 143849.7 DCF@8% 58333.33 55902.78 53573.5 51341.27 49202.05 47151.96 45187.3 43304.49 41500.14 39770.97 38113.84 36525.77 35003.86 33545.36 32147.64 30808.16 29524.48 28294.3 27115.37 25985.56 24902.83 23865.21 22870.83 21917.88 21004.63 PV 916893.5

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