Unformatted text preview: 3 4–21 Funding your retirement You plan to retire in exactly 20 years. Your goal is to
create a fund that will allow you to receive $20,000 at the end of each year for
the 30 years between retirement and death (a psychic told you would die after
30 years). You know that you will be able to earn 11% per year during the 30year retirement period.
a. How large a fund will you need when you retire in 20 years to provide the
30-year, $20,000 retirement annuity?
b. How much will you need today as a single amount to provide the fund calculated in part a if you earn only 9% per year during the 20 years preceding
retirement? CHAPTER 4 Time Value of Money 177 c. What effect would an increase in the rate you can earn both during
and prior to retirement have on the values found in parts a and b?
LG2 LG3 4–22 Present value of an annuity versus a single amount Assume that you just won
the state lottery. Your prize can be taken either in the form of $40,000 at the
end of each of the next 25 years (i.e...
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