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 45 years. Bad news: The inflation rate over your lifetime will average about 2.1%.

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 $(392501.76)

What real annuity (in today’s dollars) will $1 million support if the real interest rate at retirement is 2.9% and the annuity must last for 15 years? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Good news: You will almost certainly be a millionaire by the time you retire in 45 years. Bad news: The inflation rate over your lifetime will average about 2.1%.

Explanation / Answer

1 Amount to be received after retirement $ 10,00,000.00 Inflation rate 2.10% Number of years to retire 45 years Value of amount receivable on retirement in today's dollar : Amount, Annuity factor @ 2.1%, 45 years $ 10,00,000.00 * 0.392501.75 = $ 392,501.76 2 calculation of real annuity : Principal amount $ 10,00,000.00 Real Interest rate at retirement 2.90% Annuity factor for 15 years, 2.90%, comes to 12.02 Real annuity value $ 10,00,000 / 12.02 = $ 83,161.86

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