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Finance Cash Flow

In: Business and Management

Submitted By tomapete34
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Retirement Case
Today is your 30th birthday and you begin thinking about retirement. Your goal is to retire on your 65th birthday with enough money saved to:
i) withdraw a payment of $200,000 on your 65th birthday to live on for your first year of retirement; ii) each year after that, on your birthday, withdraw a payment which is 3% larger than the payment on your previous birthday; and iii) give your favorite niece a gift of $50,000 on your 75th birthday.
Your account should have enough money to cover a minimum of 20 years in retirement. Your assumption is that you will continue to earn a 5% annual return on your money during retirement.

Questions
1) To meet your retirement goal, what is the minimum amount of money you must have in your retirement account on your 65th birthday, before you take your first retirement withdrawal of $200,000?

2) Now that you have calculated how much you will need in a retirement account on your 65th birthday you must plan on how you will accumulate the money! Your plan is to begin making deposits into a new retirement account beginning on your 31st birthday, and make the same deposit each year until the final deposit on your 65th birthday. If your retirement account pays a 5% annual return, what is the minimum annual deposit you must make into your retirement account to meet your retirement goal?
Question #1
1. Must have $200,000
2. *have to find present value of growing annuity
3. PV= 200,000 x (1/.05-.03) x[ 1- (1.03/1.05)20 ]
4. PV= 200,000 x (1/.02) x .32
5. PV= 200,000 x (.32/.02)
6. PV= $3,200,000
7. *Find present value of $50,000 when he is 65
8. PV= FV/ (1+r)n
9. PV= 50,000/ (1.05)10
10. PV= $30,695.66
11. *Find total amount of money needed by the age of 65 to be able to live off of for a minimum of 20 years
12. $30,695.66 + 3,200,000 + 200,000 = $3,430,695.66
Question #2
1. Fv =PV + (1+r)n
2.…...

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