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# 4-33 Assume that your fatehr is now 50 years old, tht he plans to retire in 10 years, and that he expect to live for 25 years after he retires- that...

4-33
Assume that your fatehr is now 50 years old, tht he plans to retire in 10 years, and that he expect to live for 25 years after he retires- that is, until age 85. He wants his first retirement payment to have the same purchasing power at teh time he retires as \$40,000 has today. He wants all of his subsequent retirement paymentes to be equal to his first retierement payment. (Do not let the retirement payments grow with inflation: your father realizes that the real value of his retirement income will decline year by year after he retires). His retirement income will beging th day e retires, 10 years from today, and he will then receive 24 additional annual paymenents. Inflation is expected to be 5% per year from today forward. He currenlty has \$100,000 saved up; and he expectes to earn a return on his savings on 8% per year with annual compounding. To teh nearest dollar, how much must he save during each of the next 10 years (with equal deposits being made at the end of each year, begining a year, begining a year from today) to meet his retirement goal? (note: neitehr the amount he saves nor the amount he withdraws upon retirement is a growing annuity.)

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Solution
Since he wants to have same purchasing power after 10 years as \$ 40000 has today.
Inflation rate = 5%
Therefore we find Future value of \$ 40000 after 10 years if rises at 5 %
Amount...

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