02MY100508_Ans.

# 02MY100508_Ans. - PV = \$423,505 FV = 0 Pmt =? Use financial...

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02MY100508 – CRYSTAL LEBOEUF QUESTION 2-19 : Future value of an annuity. Your client is 40 years old and she wants to begin saving for retirement with the first payment to come one year from now. She can save \$5000 per year and you advise her to invest it in the stock market, which you expect to provide an average return of 9 percent in the future. a. If she follows your advice, how much money would she have at 65? Future value of an annuity = Cash flow x FVIFA 9%, 25 years = 5,000 x 84.701 = \$423,505 b. How much would she have at 70? Future value of an annuity = Cash flow x FVIFA 9%, 30 years = 5,000 x 136.31 = \$681,550 c. If she expects to live for 20 years in retirement if she retires at 65 and for 15 years at 70, and her investments continue to earn the same rate, how much could she withdraw at the end of each year after retirement at each retirement age? If the retirement age is 65: No. of years in retirement = 20 years

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Unformatted text preview: PV = \$423,505 FV = 0 Pmt =? Use financial calculator to find out the value of payments. PMT = - 46,393.48 If the retirement age is 70: No. of years in retirement = 15 years PV = \$681,550 FV = 0 Pmt =? Use financial calculator to find out the value of payments. PMT = - 84,552.33 QUESTION 2-33: FV for uneven cash flow: You want to buy a house within 3 years, and you are currently saving for the down payment. You plan to save \$5000 at the end of the first year, and you anticipate that your annual savings will increase by 10 percent annually thereafter. Your expected annual return is 7 percent. How much would you have for a down payment at the end of year 3? Year Cash flows Future value factor @7% Future value of cash flows 1 5,000 1.07 5350 2 5500 1.145 6297.5 3 6050 1.225 7411.25 Total future value of cash flows = 19058.75...
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## This note was uploaded on 05/27/2008 for the course FIN 324 taught by Professor Muth during the Spring '08 term at Sullivan.

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02MY100508_Ans. - PV = \$423,505 FV = 0 Pmt =? Use financial...

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