a) You will start your first job in January 2018. Your financial advisor has rec
ID: 2793183 • Letter: A
Question
a) You will start your first job in January 2018. Your financial advisor has
recommended saving for retirement to ensure you have enough and to leverage the
time value of money. The data for your situation follows:
Starting salary = $60,000 (at end of first year)
Annual raises = 5% p.a.
Current age = 25
Career = 40 years
ROR during career = 10%
Amount needed in first year of retirement = 80% of last year’s salary
Inflation in retirement = 3% p.a.
Determine the amount you will have in your account the day you
retire. Provide a graph of the ending balances. Round monies to the nearest dollar and
use the 1000 separator (,).
b, Using the results from (a), find the future value FV at the end of your career and conduct a
sensitivity analysis to determine if you will have enough for retirement based on
various savings rates and RORs.
Provide your observations about the results.
Explanation / Answer
Part - A
Graph Ending Balances
year Opening Salary Increases @ 5% Closing Salary
1 60,000.00 3,000.00 63,000.00
2 63,000.00 3,150.00 66,150.00
3 66,150.00 3,307.50 69,457.50
4 69,457.50 3,472.88 72,930.38
5 72,930.38 3,646.52 76,576.89
6 76,576.89 3,828.84 80,405.74
7 80,405.74 4,020.29 84,426.03
8 84,426.03 4,221.30 88,647.33
9 88,647.33 4,432.37 93,079.69
10 93,079.69 4,653.98 97,733.68
11 97,733.68 4,886.68 102,620.36
12 102,620.36 5,131.02 107,751.38
13 107,751.38 5,387.57 113,138.95
14 113,138.95 5,656.95 118,795.90
15 118,795.90 5,939.79 124,735.69
16 124,735.69 6,236.78 130,972.48
17 130,972.48 6,548.62 137,521.10
18 137,521.10 6,876.05 144,397.15
19 144,397.15 7,219.86 151,617.01
20 151,617.01 7,580.85 159,197.86
21 159,197.86 7,959.89 167,157.76
22 167,157.76 8,357.89 175,515.64
23 175,515.64 8,775.78 184,291.43
24 184,291.43 9,214.57 193,506.00
25 193,506.00 9,675.30 203,181.30
26 203,181.30 10,159.06 213,340.36
27 213,340.36 10,667.02 224,007.38
28 224,007.38 11,200.37 235,207.75
29 235,207.75 11,760.39 246,968.14
30 246,968.14 12,348.41 259,316.54
31 259,316.54 12,965.83 272,282.37
32 272,282.37 13,614.12 285,896.49
33 285,896.49 14,294.82 300,191.31
34 300,191.31 15,009.57 315,200.88
35 315,200.88 15,760.04 330,960.92
36 330,960.92 16,548.05 347,508.97
37 347,508.97 17,375.45 364,884.42
38 364,884.42 18,244.22 383,128.64
39 383,128.64 19,156.43 402,285.07
40 402,285.07 20,114.25 422,399.32
Amount Needed in First year of Retirement = 422400*80%
=337820$
Account of Inflation = 337820*1.03
=347954.6
Part - B
year Opening Salary Increases @ 5% Closing Salary FVF@10% Cash Flow
1 60,000.00 3,000.00 63,000.00 1.100 69,300.00
2 63,000.00 3,150.00 66,150.00 1.210 80,041.50
3 66,150.00 3,307.50 69,457.50 1.331 92,447.93
4 69,457.50 3,472.88 72,930.38 1.464 106,777.36
5 72,930.38 3,646.52 76,576.89 1.611 123,327.85
6 76,576.89 3,828.84 80,405.74 1.772 142,443.67
7 80,405.74 4,020.29 84,426.03 1.949 164,522.44
8 84,426.03 4,221.30 88,647.33 2.144 190,023.42
9 88,647.33 4,432.37 93,079.69 2.358 219,477.05
10 93,079.69 4,653.98 97,733.68 2.594 253,495.99
11 97,733.68 4,886.68 102,620.36 2.853 292,787.87
12 102,620.36 5,131.02 107,751.38 3.138 338,169.99
13 107,751.38 5,387.57 113,138.95 3.452 390,586.34
14 113,138.95 5,656.95 118,795.90 3.797 451,127.22
15 118,795.90 5,939.79 124,735.69 4.177 521,051.94
16 124,735.69 6,236.78 130,972.48 4.595 601,814.99
17 130,972.48 6,548.62 137,521.10 5.054 695,096.31
18 137,521.10 6,876.05 144,397.15 5.560 802,836.24
19 144,397.15 7,219.86 151,617.01 6.116 927,275.85
20 151,617.01 7,580.85 159,197.86 6.727 1,071,003.61
21 159,197.86 7,959.89 167,157.76 7.400 1,237,009.17
22 167,157.76 8,357.89 175,515.64 8.140 1,428,745.59
23 175,515.64 8,775.78 184,291.43 8.954 1,650,201.16
24 184,291.43 9,214.57 193,506.00 9.850 1,905,982.34
25 193,506.00 9,675.30 203,181.30 10.835 2,201,409.60
26 203,181.30 10,159.06 213,340.36 11.918 2,542,628.09
27 213,340.36 10,667.02 224,007.38 13.110 2,936,735.44
28 224,007.38 11,200.37 235,207.75 14.421 3,391,929.44
29 235,207.75 11,760.39 246,968.14 15.863 3,917,678.50
30 246,968.14 12,348.41 259,316.54 17.449 4,524,918.67
31 259,316.54 12,965.83 272,282.37 19.194 5,226,281.06
32 272,282.37 13,614.12 285,896.49 21.114 6,036,354.62
33 285,896.49 14,294.82 300,191.31 23.225 6,971,989.59
34 300,191.31 15,009.57 315,200.88 25.548 8,052,647.98
35 315,200.88 15,760.04 330,960.92 28.102 9,300,808.41
36 330,960.92 16,548.05 347,508.97 30.913 10,742,433.71
37 347,508.97 17,375.45 364,884.42 34.004 12,407,510.94
38 364,884.42 18,244.22 383,128.64 37.404 14,330,675.14
39 383,128.64 19,156.43 402,285.07 41.145 16,551,929.78
40 402,285.07 20,114.25 422,399.32 45.259 19,117,478.90
Savings 10% Salary fpr 40 years =19,117,478.90$
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