FIN419 Week3 Text - Problem1:

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Problem 1: You plan to retire in exactly 25 years. Your goal is to create a fund that will allow y $55,000 at the end of each year for the 30 years between retirement and death (a you would die exactly 30 years after you retire). You know that you will be  able to year during the 30-year retirement period. a) How large a fund will you need when you retire in 25 years to provide the 30-year retirement annuity? Answer: n =  30 r = 11% PMT =  PVIFA = 1-(1 + r)^-N = 8.6938 r PVA =  PMT x PVIFA = $478,158.59  b) you earn only 9% per year during the 25 years preceding retirement? Answer: n =  25 r =  9% PMT =  FVIFA =  (1 + r)^N = 8.6231 FVA =  PMT = $55,451.02  FVIFA c) What effect would an increase in the rate you can earn both during and prior to re Answer: An increase in the interest rate will lower the amount required at years as calculated in part a. The present value of $55,000 requ  will be lower at a higher discount rate. An increase in the interest rate will lower the amount required no in part b. The future value to be invested now would be greater a  therefore, a lesser amount is required How much will you need today as a single amount to provide the fund calculated  have on the values found in parts  a  and  b ? Explain?
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 you to receive (a psychic  told to earn 11% per r, $55,000 $55,000  $478,159  etirement  t the end of 25  uired for 30 years ow as calculated   at a higher interest rate;  in part  if
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Problem 2: As part of your personal budgeting process, you have determined that in each o will have budget shortfalls. In other words, you will need the amounts shown in t the end of the given year to balance your budget—that is, to make inflows equa
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This note was uploaded on 08/22/2011 for the course BUS 415 taught by Professor Barnes during the Spring '11 term at Coastal Carolina University.

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FIN419 Week3 Text - Problem1:

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