A friend is celebrating her birthday and wants to start saving for her anticipated retirement. She has the following years to retirement and retirement spending goals. Years until retirement: 30 Amount to withdraw each year: $120,000 Years to withdraw in retirement: 25 Interest rate: 7.5% Because your friend is planning ahead, the first withdrawal will not take place until one year after she retires. She wants to make equal annual deposits into her account for her retirement fund. Required: If she starts making these deposits in one year and makes her last deposit on the day she retires, what amount must she deposit annually to be able to make the desired withdrawals at retirement? Suppose your friend just inherited a large sum of money. Rather than making equal annual payments, she decided to make one lump-sum deposit today to cover her retirement needs. What amount does she have to deposit today? Suppose your friend’s employer will contribute to the account each year as part of the company’s profit-sharing plan. In addition, your friend expects a distribution from a family trust several years from now. What amount must she deposit annually now to be able to make the desired withdrawals at retirement? Employer’s annual contribution: $1,500 Years until trust fund distribution: 20 Amount of trust fund distribution: $28,500 Assume that the inflation rate is 3%. Consequently, when your friend retires she will want to withdraw $120,000 each year in today’s dollars. She will want these retirement payments to increase at 3% per year throughout her retirement. If she starts making deposit amounts in one year and her deposits increase at the inflation rate of 3% each year until she makes her last deposit on the day she retires, what amount must she initially deposit to be able to make the desired withdrawals at retirement?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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If she starts making these deposits in one year and makes her last deposit on the day she retires, what amount must she deposit annually to be able to make the desired withdrawals at retirement?
Suppose your friend just inherited a large sum of money. Rather than making equal annual payments, she decided to make one lump-sum deposit today to cover her retirement needs. What amount does she have to deposit today?
Suppose your friend’s employer will contribute to the account each year as part of the company’s profit-sharing plan. In addition, your friend expects a distribution from a family trust several years from now. What amount must she deposit annually now to be able to make the desired withdrawals at retirement?

Employer’s annual contribution:	$1,500
Years until trust fund distribution:	20
Amount of trust fund distribution:	$28,500

Assume that the inflation rate is 3%. Consequently, when your friend retires she will want to withdraw $120,000 each year in today’s dollars. She will want these retirement payments to increase at 3% per year throughout her retirement.

If she starts making deposit amounts in one year and her deposits increase at the inflation rate of 3% each year until she makes her last deposit on the day she retires, what amount must she initially deposit to be able to make the desired withdrawals at retirement?

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