Exercise 6-8 Newman weatherspoon, a super salesman contemplating retirement on h

Question

Exercise 6-8 Newman weatherspoon, a super salesman contemplating retirement on his fty-fifth birthday decides to create a furnd on an L2% basisthat will enable him to withdraw. $25,300 per year on June 30, beginning in 2021 and continuing through 2024. To develop this fund, Newman intends to make equal contributions on June 30 of each of the years 2017-2020. Click here to view factor tab How much must the balance of the fund equal on June 30, 2020, in order for Newman to satisfy his objective? (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to o decimal places, e.g. 458,581.) Balance of the fund equal on June 30, 2020 LINK TO TEXT VIDEO: SIMILAR EXERCISE Click here to view factor tables What are each of Newman's contributions to the fund? (Round factor values to 5 decimal places,e.g. 1.25124 and final answer to o decimal places, e.g. 458,581.) Newman's contributions to the fund s Click if you would like to Show Work for this question: Open Show Work LINK TO TEXT VIDEO: SIMILAR EXERCISE

Explanation / Answer

1.) To withdraw $25,300/year for 4 years and at 12% rate,

Value of corpus required on Jun30, 2020 =25300x{(1-(1+0.12)-4)/0.12} =25300x3.0373 =$76,845

So, the balance of fund is $76,845

2.) Since, the contribution will be made in each of 4 years, this will be equivalent to future value of an annuity due i.e.

(1+0.12)xPx{(1+0.12)4-1)/0.12} =76,845

1.12Px4.7793 =76,845

P =76,845/1.12/4.7793

P= 14,356

Hence, the equal annual contribution should be $14,356

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