Please, someone help me with this. I am completely stuck and the prof won't help. Also, I need to know how to do this type of problem by formula only...the prof won't allow excel spreadsheet submissions. The problem has to do with a retirement plan: Jack wants to retire at age 60 with a first year retirement income of $150,000. He wants his annual income in retirement to increase by 2% annually. At the day of his retirement (age 60), he has $285,000 saved. Does he have enough money to last him to his death at age 70. All retirement income is paid out annually at the beginning of the year (beginning at age 60). Use a 4% interest rate. I know that the obvious answer is that he won't have enough income but what equation would I use to signify that he doesn't? I've messed around with the PV of growing annuity but still no success. Please help. It is much appreciated.
Higher Education (University +) - 2 Answers
Random Answers, Critics, Comments, Opinions :
1
It's a progression equation, but I can't help you any more than that. I do remember seeing it on PBS in regard to the check-sum calculation demonstration on the TV program. Check-sum is that number you see on all retail items. A really long number with the bar code above it. So the very last digit is the last digit of what all the numbers added would make, a way to make sure the bar code is correct.
2
This sounds more like a joke. How old is Jack now? How much of his income will he save each year to add to his fund? If he is already 60 then obviously his money will last less than 2 years. $285,000 is the present value of an annuity. The annual rent of a 10-year ordinary annuity at 4% is $35,138, so he is short about $114,862 per year. To meet his goal at 4% he would have to have a present fund of $1,216,634. That's the present value of an ordinary annuity with annual rents of $150,000. The problem does not provide enough information. Aside from his current age, you need to know if compounding is annual, quarterly, or monthly, and doe he want the rent at the beginning or the end of the period. If he wants it at the beginning then you have to use an annuity due, not an ordinary annuity. The above is a steady income. If his income is to increase, the problem is more complex and can be solved by finding the present value of each individual annual rent: PV of $150,000 for one period, then PV of $153,000 for two periods, then PV of $156.06 for three periods, and so on for ten periods. You add up the 10 individual present values to find out how much he has to have at the beginning. Whoever wrote the problem knows less about it than you do. Maybe they intended his fund to be $1,285,000. Then the problem would make sense. So don't feel bad.
0 comments:
Post a Comment