Mr. Moore is 35 years old today and is beginning to plan for his retirement. He

Question

Mr. Moore is 35 years old today and is beginning to plan for his retirement. He wants to set aside an equal amount at the end of each of the next 25 years so that he can retire at age 60. He expects to live to the maximum age of 80 and wants to be able to withdraw $25,000 per year from the account on his 61st through 80th birthdays. The account is expected to earn 10 percent per annum for the entire period of time. Determine the size of the annual deposits that must be made by Mr. Moore. a. $212,850 b. $23,449 c. $2,164 d. $8,514

Explanation / Answer

First of all we shall calculate Value of $25000 withdrawal (60 to 80age) at the age of 60 year.

Now we shall calculate annuity to be paid per year from age 35 to 60 for Future Value 212839.09

Mr. Moore should make deposits of 2164.16 every year starting from age 35 to 60 to get $25000 per year after age 60 till age 80.

Cash Flow= 25000 Interest rate= 10% No of Periods= 80-60= 20years PV OrdinaryAnnuity= C*((1-(1+i)^(-n))/i) PV OrdinaryAnnuity at the age of 60= 25000*((1-(1+0.10)^(-20))/0.10) PV OrdinaryAnnuity at the age of 60= 212839.09

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