As a new professional employee you need to worry about your retirement many year

Question

As a new professional employee you need to worry about your retirement many years in the future. Construct a table showing how much you need to have invested, at 4 percent, 8 percent, and 12 percent annual rate of return, to provide each $100 of monthly income. Assume that inflation will increase at 3 percent annually, so the num- bers you calculate will be in inflation-adjusted dollars. Calculate the monthly amount needed for a retirement period of 25, 30, 35, and 40 years. Assume that the investments are made in tax-sheltered accounts. and if a device lasts 20 years and has a payback of 10 years, what is the IRR?

Explanation / Answer

Ans) Inflation Ratio = 3% retirement Period = 25,30,35,40 He wants income = $            100 Present Value for 25Years = 0.47761 209.3759 Present Value for 30 Years = 0.41199 242.7243 Present Value for 35 Years = 0.35538 281.3889 Present Value for 40 Years = 0.30656 326.2004 Calculate the monthly amount needed for a retirement period 25 Year 30 Year 35 Year 40 Year Amount of interest after adjustment of Inflation = 1/0.47761*100 1/0.41199*100 1/0.35538*100 1/0.30656*100 209.3759 242.7243 281.3889 326.2004 For 25 years Interest Income 4% 8% 12% 209.3759 209.3759 209.3759 Amount need for investment $        5,234 $        2,617 $     1,745 For 30 years Interest Income 4% 8% 12% 243 243 243 Amount need for investment $        6,068 $        3,034 $     2,023 For 35 year Interest Income 4% 8% 12% 281 281 281 Amount need for investment $        7,025 $        3,513 $     2,342 For 40 year Interest Income 4% 8% 12% 326 326 326 Amount need for investment $        8,155 $        4,075 $     2,717 If the device last 20 years and has payback period of 10 year then the IRR is positive value as the device is getting the amount in half of year only then the next after year cash inflow will decided percentageof return.

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