Stephen Bosworth, a super salesman contemplating retirement on his fifty-fifth b

Question

Stephen Bosworth, a super salesman contemplating retirement on his fifty-fifth birthday, decides to create a fund on an 8% basis that will enable him to withdraw $25,000 per year on June 30, beginning in 2014 and continuing through 2017. To develop this fund, Stephen intends to make equal contributions on June 30 of each of the years 2010-2013. (Round all answers to 2 decimal places, e.g. 10,250.25. Hint: Use tables in text.)

(a) How much must the balance of the fund equal on June 30, 2013, in order for Stephen Bosworth to satisfy his objective?

$


(b) What are each of Stephen's contributions to the fund?

$

Explanation / Answer

Oh okay, so this is just annuity stuff. a.) You need to calculate the PV of four withdrawals of $25,000, discounted back at 8%. I generally use tables for this, but calculators can do it too. I get $82803.17. For clarification, this is with N = 4, I% = 8, PMT = 25000, and FV = 0. I did it on my TI-84 calculator. b.) You need to calculate what each of four payments will be to get the amount in (a). One payment per year at 8% interest. I get $18375.75. This is with N = 4, I% = 8, PMT = -18375.75 (paying out of pocket), and FV = 82803.17 Let me know if you need any clarification.

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