After graduating from college with a bachelor of business administration, you be

Question

After graduating from college with a bachelor of business administration, you begin an ambitious plan to retire in 23.00 years. To build up your retirement fund, you will make quarterly payments into a mutual fund that on average will pay 11.08% APR compounded quarterly. To get you started, a relative gives you a graduation gift of $3,095.00. Once retired, you plan on moving your investment to a money market fund that will pay 5.40% APR with monthly compounding. As a young retiree, you believe you will live for 34.00 more years and will make monthly withdrawals of $9,396.00. (YOUR WITHDRAWALS ARE AT THE BEGINNING OF THE MONTH!!!!) To meet your retirement needs, what quarterly payment should you make?

Explanation / Answer

FV = 0, N = 34*12, rate = 5.4%/12, PMT = 9396

use PV funciton in Excel with type as 1

amount required at retirement = 1,761,577.61

FV = -1,761,577.61, PV = 3095, N = 23*4, rate = 11.08/4

use PMT function in Excel

quarterly deposits = 4,205.49

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