:. K a D ] 100% (ii). Wed Sep 5 10:58 PM a Q Search in Document AaBbCeDdE AaBbCe

Question

:. K a D ] 100% (ii). Wed Sep 5 10:58 PM a Q Search in Document AaBbCeDdE AaBbCeDdE AaBbCcDc AaBbCcDdEe AaBbC AaBbccDdEe Normal No Spacing Head ing 1 Heading 2 Title Subtitle 9) In order to comfortably retire you have calculated that you need $5 million by your retirement date. If you can earn a return of 9.5% annually on your investments, how much should you save and invest at the end of each month during the 35 years of your working life? A) $1,498 B) $1,564 C) $1,225 D) $1,978 10) You have two major expenses to take care of in the future: $5,000 three years from now and $20,000 five years from now. How much should you save and put aside today in order to have enough money to exactly take care of those two expenses in the future? Assume that you can invest your savings at the annual rate of 8.5% A) $17,215.44 B) $25,000 C $15,567.89 D) $19,107.39

Explanation / Answer

FV of Annuity = Cash Flow* [(1+r)^n - 1 ] / r

$ 5 M = CF [ (( 1 + 0.0079)^420 ) - ] / 0.0079

CF = $ 5 M * 0.0079 / [ ((1.0079)^420 ) -1 ]

= $ 5 M * 0.0079 / [ (27.4374 ) -1 ]

= $ 39583.33 / 26.4374

= 1498

Part B:

Amount Required is PV of Future cash flow is required.

             17,215.45

Pls comment, if any further assistance is required.

Cash Flow Required After PVF @ 8.5% PV of Cash flow 5000 3 0.7829                3,914.54 20000 5 0.6650              13,300.91 Amount Required

             17,215.45

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