HACE 3200 1nd Edition Lecture 30 Outline of Last Lecture I Retirement Planning II Social Security III Pension Plans Outline of Current Lecture I Practice Problems Current Lecture TVM Finals practice problems April wants to have 1 75 Million dollars in her retirement account in 45 years If she gets an annual rate of return of 7 75 on her investment How much does she need to save each year to have 1 75 million dollars in her account Answer 4 885 76 FVA 1 75 M N 45 years i y 7 75 CPT PMT 4 885 76 Ben wants to retire in 30 years He needs to have 4 5 million dollars in his retirement account to live his current life style at retirement How much does Ben have to invest each year to have that much in 30 years if he receives an annual rate of return of 12 5 Answer 16 920 70 FVA 4 5 M N 30 years These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute I y 12 5 CPT PMT 16 920 70 Courtney is planning for her children s education She has 14 children She expects she will need 2 25 million dollars to put them all through college Courtney is 31 The children will enter college in 15 years How much must she put away each year for her children s education fund She is currently earning a 9 5 rate of return on her investments Answer 73 673 31 FVA 2 25 M N 15 years I Y 9 5 PMT 73 673 31 Daphne has just retired She has 1 million dollars in her retirement account It is earning 8 interest She is 65 and knows she is going to live only 10 more years How much can she draw annually out of her account each year until her death in 10 years Answer 149 029 49 PV 1 M N 10 years I Y 8 CPT PMT 149 029 49 Eunice has also just retired She is 65 and her life expectancy is for 20 more years She has the same 1 million dollars in her account The account is also earning 8 annual interest How much can she draw out of her account to live on each year Answer 101 852 21 PV 1 M I Y 8 N 20 years CPT PMT 101 852 21 Joseph began saving for his retirement at age 28 Each year he deposited 2 800 into an IRA account The account has earned an annual rate of return of 15 Joseph is 58 years old now 1 How much is his IRA worth today 2 If he stops investing 2 800 annually and lets the account grow at an annual rate of 12 annually how much will be in the account when he retires at age 65 Answer 2 691 032 43 1st Part PMT 2 800 N 30 years I Y 15 FVA 1 217 286 41 2nd Part PV 1 217 286 41 I Y 12 N 7 CPT FV 2 691 032 43 You would like to have a complete makeover by the time you are 40 You are currently 25 years old Your makeover will cost 60 000 How much do you need to put away at the end of each year at 9 to have enough money for your transformation Answer 2 043 53 FVA 60 000 N 15 years I Y 9 CPT PMT 2 043 53 If you deposit 5 000 in an individual retirement account IRA at the end of each year and it grows at a rate of 12 5 how much will you have at the end of 30 years Answer 1 329 732 20 PMT 5 000 I Y 12 5 N 30 years FVA 1 329 732 20 You currently have 23 000 in your retirement account earning an annual rate of return of 11 5 You will leave this 23 000 in your account and allow it to grow for the next 30 years You want to have 2 000 000 in your retirement account when you retire in 30 years How much more do you need in your account to have 2 000 000 in 30 years Answer 1 397 477 PV 23 000 I Y 11 5 N 30 years CPT FV 602 523 32 You have to subtract the FV from 2 million to see how much more he needs in his account to reach his goal 2 000 000 00 602 523 32 1 397 477
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