EEL 4914 Take home exam on economics Dr. Fernando Gonzalez Summer 2002 NAME group# You must turn this take home test in by the final exam time. For each question you must provide a solution that has the following form: AAAAAAAF 92.196,4$06.01)06.01(500$7=−+=F You must show the graph and the equations. 1. You are planning to create an investment program for your retirement. Assume the inflation is 2.5% per year. You may treat inflation as a charge being compounded yearly as you go into the future. In this problem you will determine how much you need to invest monthly so that you reach a desired income from your investments after retirement at age 65. For this problem do not consider other income such as social security. a) What is you investment’s rate of return. This depends on the method of investment; tax deferred retirement accounts pay about 8% annually, rental property pays about 10% to 12% annually but requires some maintenance effort, and so on. b) What salary are you aiming to have when you retire? Specify the amount using today’s Dollar value. c) How many years do you have to invest. That is the number of years from when you start working to you retire. d) What is your desired retirement salary for the year you retire using actual Dollar amount. That is you need to take your desired retirement yearly amount in today’s Dollar value and compute what that will be worth when you retire assuming an inflation rate of 2.5% yearly. e) How much money do you need to have in your account when you retire so that you will have the desired yearly income for every year until you turn 100 years old. Do not consider the inflation after you retire. f) Repeat the last part but now consider inflation by increasing your income each year.g) How much money do you need to invest each month when you start working so that you will have the sum computed requires. Do not consider inflation in this part. h) Repeat the last part but now consider inflation. That is, you want to compute a monthly amount to invest that increases each year by the rate of inflation. This way you pay more later when money is worth less and maintain a constant payment value each