Bilbo Baggins wants to save money to meet three objectives. First, he would like
ID: 2738877 • Letter: B
Question
Bilbo Baggins wants to save money to meet three objectives. First, he would like to be able to retire 30 years from now with a retirement income of $33,500 per month for 20 years, with the first payment received 30 years and 1 month from now. Second, he would like to purchase a cabin in Rivendell in 10 years at an estimated cost of $415,000. Third, after he passes on at the end of the 20 years of withdrawals, he would like to leave an inheritance of $775,000 to his nephew Frodo. He can afford to save $4,000 per month for the next 10 years. If he can earn a EAR of 10 percent before he retires and a EAR of 7 percent EAR after he retires, how much will he have to save each month in years 11 through 30? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
Bilbo Baggins wants to save money to meet three objectives. First, he would like to be able to retire 30 years from now with a retirement income of $33,500 per month for 20 years, with the first payment received 30 years and 1 month from now. Second, he would like to purchase a cabin in Rivendell in 10 years at an estimated cost of $415,000. Third, after he passes on at the end of the 20 years of withdrawals, he would like to leave an inheritance of $775,000 to his nephew Frodo. He can afford to save $4,000 per month for the next 10 years. If he can earn a EAR of 10 percent before he retires and a EAR of 7 percent EAR after he retires, how much will he have to save each month in years 11 through 30? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
Explanation / Answer
Ans)
27334$
PVAF (10% 10yrs) i.e (1.10)10 = 2.5937
PVAF (10% 20yrs) i.e (1.10)20 = 6.7275
PVAF (7% 30yrs) i.e (1.07)30 =7.61
Note : Assume that EAR compounding annually and Present value divided by 12 month is permonth present value. so monthly savings is 27334$.
Object AMOUNT PVAF Present value Per month 1 415000 2.5937 160003 13334 2 775000 6.7275 115199 9600 3 402000 7.61 52810 4401Related Questions
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