EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN: 9781337514835
Author: MOYER
Publisher: CENGAGE LEARNING - CONSIGNMENT
expand_more
expand_more
format_list_bulleted
Related questions
Question
Li is amazed that he will be able to accumulate over $600,000. However, he knows that
inflation will increase his cost of living significantly in 30 years. He assumes 3% inflation
and wants to find the income he needs at age 67 to have the same
$40,000 today. (Hint: Look at inflation in Section 10.2 and use the compound interest table
in Section 10.1.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by stepSolved in 2 steps
Knowledge Booster
Similar questions
- I was having trouble with #2c I calculated . Please assistarrow_forwardAssume that you want to retire 30 years from now with an amount of money that will have the same value (purchasing power) as $3 million today. If you believe the inflation rate will average 4.8% per year, determine the amount of future dollars you will need. The amount of future dollars you will need is $ . (Enter your answer in dollars and not in millions of dollars.)arrow_forward1. Assume that your father is now 50 years old, that he plans to retire in 10 years, and that he expects to live for 25 years after he retires-that is, until age 85. He wants his first retirement payment to have the same purchasing power at the time he retires as GH¢ 40,000 has today. He wants all of his subsequent retirement payments to be equal to his first retirement payment. (Do not let the retirement payments grow with inflation: Your father realizes that the real value of his retirement income will decline year by year after he retires.) His retirement income will begin the day he retires, 10 years from today, and he will then receive 24 additional annual payments. Inflation is expected to be 5% per year from today forward. He currently has GH¢ 100,000 saved up; and he expects to earn a return on his savings of 8% per year with annual compounding. To the nearest dollar, how much must he save during each of the next 10 years (with equal deposits being made at the end of each year,…arrow_forward
- In our prior example, you need to have about $4,000,000 in savings at the age of 60 to fund retirement withdrawals that start at $250,000 on your 61st birthday, grow at 3% (the assumed inflation rate), and last for 35 years (i.e., from 61 to 95). You are currently 30 years old and have received an inheritance from your rich aunt. You have no savings. As in the prior example, assume that you will earn 8% per year on your investments. How large does the inheritance need to be to completely fund your retirement plan, which requires savings of $4,000,000 on your 60th birthday? $400,000 $500,000 $700,000 $600,000 $800,000arrow_forwardYou have estimated your future retirement income needs and, after taking Social Security into account, you have determined that you will have an pretax income shortfall of $100,000 in your first year of retirement at age 65. How much will you need to have saved by then, assuming you want to have your retirement income increase with inflation, but are willing to spend down your principal over time? Assume that you will live for 40 years in retirement, inflation will average 3% and you can earn 7% on your investments. (Hint: Use the inflation - adjusted annuity equation). You have estimated your future retirement income needs and, after taking Social Security into account, you have determined that you will have an pretax income shortfall of $100,000 in your first year of retirement at age 65. How much will you need to have saved by then, assuming you want to have your retirement income increase with inflation, but are willing to spend down your principal over time? Assume that you will…arrow_forwardConsider the following statement: "If you are 20 years of age and save $1.00 each day for the rest of your life, you can become a millionaire." Assume that you live to age 80 and that the annual interest rate is 12%. Under these specific conditions, we compute the future compound amount (F): $2,727,149. If inflation is expected to average 3% per year over the next 60 years, your purchasing power will be less than $2,727,149. a. When f= 3% per year, what is the purchasing power of this future sum of money in today's dollars when you reach age 80? b. Repeat Part (a) when inflation averages 1% per year. Click the icon to view the interest and annuity table for discrete compounding when i = 1% per year. Click the icon to view the interest and annuity table for discrete compounding when /=3% per year. a. The purchasing power is $ thousand. (Round to the nearest whole number.) b. The purchasing power is $ thousand. (Round to the nearest whole number.)arrow_forward
- Assume that your father is now 50 years old, plans to retire in 10 years, and expects to live for 25 years after he retires that is, until age 85. He wants his first retirement payment to have the same purchasing power at the time he retires as $50,000 has today. He wants all his subsequent retirement payments to be equal to his first retirement payment. (Do not let the retirement payments grow with inflation: Your father realizes that if inflation occurs the real value of his retirement income will decline year by year after he retires). His retirement income will begin the day he retires, 10 years from today, and he will then receive 24 additional annual payments. Inflation is expected to be 6% per year from today forward. He currently has $150,000 saved and expects to earn a return on his savings of 8% per year with annual compounding. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question…arrow_forwardYou have determined that you will need to accumulate $1,000,000 in your retirement account in order to cover your inflation-adjusted shortfall. Which of the following is closest to the amount of money you would need to put into a tax-deferred retirement account every year if you plan on retiring in 40 years? Assume an 8% average return on this account and that it is empty today. Hint: Use TVM calculator $1,458 $3,860 $5,957 $8,444 $25,000arrow_forwardTo live comfortably in retirement, you decide you will need to save $2 million by the time you are 65 (you are 30 years old today). You will start a new retirement savings account today and contribute the same amount of money on every birthday up to and including your 65th birthday. Using TVM principles, how much must you set aside each year to make sure that you hit your target goal if the interest rate is 5%? What flaws might exist in your calculations, and what variables could lead to different outcomes? What actions could you take ensure you reach your target goal?arrow_forward
- A woman desires to have $400,000 in a savings account when she retires in 20 years. Because of the effects of inflation on spending power, she stipulates that her future “nest egg” will be equivalent to $400,000 in today’s purchasing power. If the expected average inflation rate is 7% per year and the savings account earns 5% per year, what lump-sum amount of money should the woman deposit now in her savings account?arrow_forwardShelly Franks is planning for her retirement, so she is setting up a payout annuity with her bank. She is now 35 years old, and she will retire when she is 65. She wants to receive annual payouts for twenty years, and she wants those payouts to receive an annual COLA of 4%. a. She wants her first payout to have the same purchasing power as does $15,000 today. How big should that payout be if she assumes inflation of 4% per year? b. How much money must she deposit when she is 65 if her money earns 8.3% interest per year? c. How large a monthly payment must she make if she saves for her payout annuity with an ordinary annuity? (The two annuities pay the same interest rate.) d. How large a monthly payment would she make if she waits until she is 40 before starting her ordinary annuity?arrow_forwardSuppose that your retirement benefits during your first year of retirement are $60,000 per year which is just enough to meet your cost of living during the first year. However, your cost of living is expected to increase at an annual rate of 5% due to inflation. If there is no cost-of-living adjustment in your retirement pension, then some of your future living cost has to come from savings other than retirement pension. If your saving account earns 7% interest a year, how much should you set aside in order to meet this future increase in the cost of living for 25 years? O $428,985.67 O S1,128,200.66 O $699,214.99 O $34,960.75arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT