sider a person who begins contributing to a retirement plan at age 25 and contri
ID: 2785782 • Letter: S
Question
sider a person who begins contributing to a retirement plan at age 25 and contributes for 40 years until first ten years, she contributes $2,600 per year. She increases the contribution rate to $4,600 per year in years 11 through 20. This is followed by increases to $9,600 per year in years 21 retirement through 30 and to $14,600 per year for the last ten years. This money earns a 8 percent return. your answer to 2 decimal First compute the value of the retirement plan when she turns age 65 (Round places.) alue yment she would receive over the next 40 years if the wealth was converted to an Compute the annual pa annuity payment at 7 percent. (Round your answer to 2 decimal places.) Annual payment References eBook & ResourcesExplanation / Answer
Let's divide the the contribution in four parts.
1) 2,600 for the next 40 years, 2) 2,000 for 30 years, 3) 5,000 for 20 years, 4) 5,000 for 10 years.
Using FV function, let's calculate the FV for these payments at 8%
N = 40, PMT = 2600, I/Y = 8%, PV = 0 => FV(1) = $673,546.95
N = 30, PMT = 2000, I/Y = 8%, PV = 0 => FV(2) = $226,566.42
N = 20, PMT = 5000, I/Y = 8%, PV = 0 => FV(3) = $228,809.82
N = 10, PMT = 5000, I/Y = 8%, PV = 0 => FV(4) = $72,432.81
Total FV = $1,201,356.00 is the value of the retirement plan
Now, annual payment can be calculated using PMT function
N = 40, I/Y = 7%, PV = 1,201,356.00, FV = 0 => PMT = $90,112.68
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