Problem 6-32 Calculating Annuities [LO1 You are planning to save for retirement

Question

Problem 6-32 Calculating Annuities [LO1 You are planning to save for retirement over the next 25 years. To do this, you will invest $820 per month in a stock account and $420 per month in a bond account. The return of the stock account is expected to be 10.2 percent, and the bond account will pay 6.2 percent. When you retire, you will combine your money into an account with a 7.2 percent return. How much can you withdraw each month from your account assuming a 20-year withdrawal period? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g, 32.16.) Withdrawalper month

Explanation / Answer

Stock Account:

N = 300, PV = 0, PMT = 820, rate = 10.2%/12

use FV function n Excel

value in stock account = 1,125,795.30

Bond Account:

N = 300, PV = 0, PMT = 420, rate = 6.2%/12

use FV function n Excel

value in stock account = 300,181.3321

total value in account after 25 years = 300,181.3321 + 1,125,795.30 = 1,425,976.63

PV = 1,425,976.63, FV = 0, N = 240.rate = 7.2%/12

use PMT function in Excel

withdrawal = 11,227.42

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