Good news: You will almost certainly be a millionaire by the time you retire in

Question

Good news: You will almost certainly be a millionaire by the time you retire in 40 years. Bad news: The inflation rate over your lifetime will average about 3.2% a. What will be the real value of $1 million by the time you retire in terms of today's dollars? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Real value $ b. What real annuity (in today's dollars) will $1 million support if the real interest rate at retirement is 2.2% and the annuity must last for 10 years? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Real annuity $

Explanation / Answer

Ans) a) real value of 1 million = 1000000/1.032^40 = 1000000/3.5252 = 283671.85

b)Real annuity with @ 2.2% at last 10 years = 283671.85/ annuity of 10years @ 2.2% = 283671.85/8.8893 =31911.61

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