Solution Question 1
Determine how much Warren’s account will be worth at age 55
What we know PMT = $12,000; r = 11%; n = 15
Using Financial Maths tables we can work out the future value of this annuity at age 55
FVA = $12,000 x (34.405) = $412,860
Subtract cost of country club membership at age 55
$412,860 - $40,000 = $372,860 left in the bank
Using Financial Maths table we can determine value of $372,860 left in the account until
age 65, ie another 10 years at 11%
$372,860 x (FVIF11%, 10) = $372,860 x (2.839) = $1,058,549.50
Subtract this amount from goal amount to determine shortfall
$1,500,000 - $1,058,549.50 = $441,450= Required accumulated value of Last 10
payments
Using the Future Value of an Annuity Formula,
(10 periods, 11%, FV= $441,450, PMT=?)
$441,450 = PMT x (16.772)