A couple will retire in 50 years; they plan to spend about $20,000 a year in ret
ID: 2712968 • Letter: A
Question
A couple will retire in 50 years; they plan to spend about $20,000 a year in retirement, which should last about 25 years. They believe that they can earn 9% interest on retirement savings.
If they make annual payments into a savings plan, how much will they need to save each year? Assume the first payment comes in 1 year. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
How would the answer to part (a) change if the couple also realize that in 20 years they will need to spend $50,000 on their child’s college education? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
A couple will retire in 50 years; they plan to spend about $20,000 a year in retirement, which should last about 25 years. They believe that they can earn 9% interest on retirement savings.
Explanation / Answer
a
How would the answer to part (a) change if the couple also realize that in 20 years they will need to spend $50,000 on their child’s college education?
Addition Annual Payment =50000/9.1285 PVIFA 20 years 9 %=5477.32
Hence annual payment =5477+2641.98 =8118.98
PV factor present value of the money that the couple plans to spend in retirement at Year 25 9% interest 20000 per year 9.822579605 196542 Present Value Now 1/(1.09)^50*196542 0.013448539 2641.98Related Questions
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