FIN 419

Week 3 Assignment from Reading

P4-23

Funding your retirement You plan to retire in exactly 20 years. Your goal is to

create a fund that will allow you to receive 20,000 at the end of each year for

the 30 years between retirement and death (a psychic told you would die exactly

30 years after you retire). You know that you will be able to earn 11% per year

during the 30-year retirement period.

a. How large a fund will you need when you retire in 20 years to provide the

30-year, 20,000 retirement annuity?

173,800 will be needed in order to retire in 20 years and provide the 30 year, 20,000 retirement annuity. This is calculated below:

According to the text book, present value (annuity): (, )

PVA PMT x (PVIFA11%, 30)

PVA 20,000 x ()

PVA 173,800

b. How much will...