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Terms in this set (534)
Cindy wants to have an BEG Mode
annual retirement # of Periods (1 P/YR in this example)
income of $50,000 C ALL
protected against 3% 50000, PMT
inflation. Assuming an 8% 4.8544, I/YR [(1.08 ÷ 1.03) - 1] × 100 = 4.8544 I/YR
after-tax rate of return 25, N
and a retirement period PV
of 25 years, how much Solution: $749,812.61
money does Cindy need
in order to provide the
inflation-protected
$50,000 at the beginning
of each retirement year?
END Mode
# of Periods (1 P/YR in this example)
C ALL
380000, FV
Frank will retire in 14
10, I/YR
years, and he needs to
14, N
save an additional
PMT
$380,000 to provide the
Solution: $13,583.56 (The answer is actually
retirement income that
-$13,583.56, as this represents an outflow to
he wants. Assume that
savings.)
,Dan and Barbara have BEG Mode
saved $850,000. Assume # of Periods (1 P/YR in this example)
that inflation is 3% and C ALL
after-tax earnings are 850000, PV
9%. Also assume that 5.8252, I/YR [(1.09 ÷ 1.03) - 1] × 100 = 5.8252 I/YR
their retirement will last 26, N
26 years. How much PMT
annual retirement Solution: $60,721.17
income, protected
against inflation, can the
$850,000 provide for 26
years with payments
made at the beginning of
each year?
Step #1: Find the inflated value of $75,000 in 15
years # of Periods (1 P/YR in this example)
C ALL
The Smiths are a 50- 75000, PV
year-old couple with an 3.5, I/YR
annual retirement 15, N
budget of $75,000 (in FV
today's dollars). They Solution: $125,651.16 (This becomes our starting
want to plan for a income payment in Step #2.)
retirement life Step #2: Calculate the PVAD of 25 years of
expectancy of 25 years payments, using a first payment amount of $125,651,
(starting at age 65), and and factoring both inflation (3.5%) and the rate of
assume a 3.5% average return (7%) (i.e., a serial payment).
inflation rate and a 7% BEG Mode
long-term rate of return. # of Periods (1 P/YR in this example)
How much money will C ALL
they need at age 65 to 125651, PMT
fund their retirement? 3.3816, I/YR [(1.07 ÷ 1.035) - 1] × 100 = 3.3816 I/YR
25, N
PV
Solution: $2,168,715.58
John Bennett wants to BEG Mode# of Periods (1 P/YR in this example)
receive the equivalent of C ALL
$40,000 in today's 40000, PMT
dollars at the beginning 9, N
of each year for the next 4.7619, I/YR [(1.10 ÷ 1.05) - 1] x 100 = 4.7619
, Karen Troy, age 51, wants END Mode
to quit working in six # of Periods (1 P/YR, in this example)
years. In terms of today's C ALL
dollars, she needs an 400000, FV
additional $400,000 in 6, N
six years to have 2.8571,
sufficient funds to I/YR [(1.08 ÷ 1.05) - 1] x 100 = 2.8571 I/YR
finance this goal. She PMT = $62,061.19X 1.05= $65,164.25
assumes that inflation will Solution: $65,164.25 (This answer is actually
average 5% over the -$65,164.25 as it represents an outflow to savings.)
long run and that she
can earn an 8%
compound annual after-
tax return on
investments.
What serial payment
should Karen invest at
the end of the first year
to fund this goal?
Sean Kelley wants to FV, 50000
save $50,000 in today's 10, N
dollars for a future goal. 2.8846, I/YR
He will need that sum by PMT = $4,384.75x 1.04 = $4,560.14
the end of 10 years. He Solution: $4,560.14 (The answer is actually
plans to fund this goal by -$4,560.14, as it represents an outflow to savings.)
investing a serial
payment at the end of
each year. Sean believes
that his after-tax earnings
on investments will be
7% annually and that
inflation will average 4%
over the long term.
What will be the dollar
amount of Sean's first
payment, to be made at
the end of this year?
Cheryl Cooper wants to BEG Mode
receive the equivalent of 30000, PMT
$30,000 in today's 4.8077, I/YR [(1.09 ÷ 1.04) - 1] x 100 = 4.8077 I/YR
Terms in this set (534)
Cindy wants to have an BEG Mode
annual retirement # of Periods (1 P/YR in this example)
income of $50,000 C ALL
protected against 3% 50000, PMT
inflation. Assuming an 8% 4.8544, I/YR [(1.08 ÷ 1.03) - 1] × 100 = 4.8544 I/YR
after-tax rate of return 25, N
and a retirement period PV
of 25 years, how much Solution: $749,812.61
money does Cindy need
in order to provide the
inflation-protected
$50,000 at the beginning
of each retirement year?
END Mode
# of Periods (1 P/YR in this example)
C ALL
380000, FV
Frank will retire in 14
10, I/YR
years, and he needs to
14, N
save an additional
PMT
$380,000 to provide the
Solution: $13,583.56 (The answer is actually
retirement income that
-$13,583.56, as this represents an outflow to
he wants. Assume that
savings.)
,Dan and Barbara have BEG Mode
saved $850,000. Assume # of Periods (1 P/YR in this example)
that inflation is 3% and C ALL
after-tax earnings are 850000, PV
9%. Also assume that 5.8252, I/YR [(1.09 ÷ 1.03) - 1] × 100 = 5.8252 I/YR
their retirement will last 26, N
26 years. How much PMT
annual retirement Solution: $60,721.17
income, protected
against inflation, can the
$850,000 provide for 26
years with payments
made at the beginning of
each year?
Step #1: Find the inflated value of $75,000 in 15
years # of Periods (1 P/YR in this example)
C ALL
The Smiths are a 50- 75000, PV
year-old couple with an 3.5, I/YR
annual retirement 15, N
budget of $75,000 (in FV
today's dollars). They Solution: $125,651.16 (This becomes our starting
want to plan for a income payment in Step #2.)
retirement life Step #2: Calculate the PVAD of 25 years of
expectancy of 25 years payments, using a first payment amount of $125,651,
(starting at age 65), and and factoring both inflation (3.5%) and the rate of
assume a 3.5% average return (7%) (i.e., a serial payment).
inflation rate and a 7% BEG Mode
long-term rate of return. # of Periods (1 P/YR in this example)
How much money will C ALL
they need at age 65 to 125651, PMT
fund their retirement? 3.3816, I/YR [(1.07 ÷ 1.035) - 1] × 100 = 3.3816 I/YR
25, N
PV
Solution: $2,168,715.58
John Bennett wants to BEG Mode# of Periods (1 P/YR in this example)
receive the equivalent of C ALL
$40,000 in today's 40000, PMT
dollars at the beginning 9, N
of each year for the next 4.7619, I/YR [(1.10 ÷ 1.05) - 1] x 100 = 4.7619
, Karen Troy, age 51, wants END Mode
to quit working in six # of Periods (1 P/YR, in this example)
years. In terms of today's C ALL
dollars, she needs an 400000, FV
additional $400,000 in 6, N
six years to have 2.8571,
sufficient funds to I/YR [(1.08 ÷ 1.05) - 1] x 100 = 2.8571 I/YR
finance this goal. She PMT = $62,061.19X 1.05= $65,164.25
assumes that inflation will Solution: $65,164.25 (This answer is actually
average 5% over the -$65,164.25 as it represents an outflow to savings.)
long run and that she
can earn an 8%
compound annual after-
tax return on
investments.
What serial payment
should Karen invest at
the end of the first year
to fund this goal?
Sean Kelley wants to FV, 50000
save $50,000 in today's 10, N
dollars for a future goal. 2.8846, I/YR
He will need that sum by PMT = $4,384.75x 1.04 = $4,560.14
the end of 10 years. He Solution: $4,560.14 (The answer is actually
plans to fund this goal by -$4,560.14, as it represents an outflow to savings.)
investing a serial
payment at the end of
each year. Sean believes
that his after-tax earnings
on investments will be
7% annually and that
inflation will average 4%
over the long term.
What will be the dollar
amount of Sean's first
payment, to be made at
the end of this year?
Cheryl Cooper wants to BEG Mode
receive the equivalent of 30000, PMT
$30,000 in today's 4.8077, I/YR [(1.09 ÷ 1.04) - 1] x 100 = 4.8077 I/YR
