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Ron Klain just turned 30 today
Ron Klain just turned 30 today. His salary next year will be $40,000. Ron forecasts that his salary will increase at a steady rate of 5% per year until he retires at age 60. Suppose that Ron ends up saving $200,000 when he turns 60. He can invest this money at a rate of 6%. If Ron plans to spend these savings in even amounts over the subsequent 20 years, how much can he spend each year? Select one: O a. $10,926 O b. $100,000 O c. $17,437 O d. $4,414
Expert Solution
When Ron is 60 he has saving of $ 200000
Interest rate (r)=6%
He requires equal annual payment for (n)20 year
We know that
Present value of annuity =pmt *
[1-{1/(1+r)^n}]/r
On putting Value in formula
200000 =pmt *[1-{1/(1+0.06)^20}]/0.06
200000=pmt *11.46992
Pmt =200000/11.46992
Pmt = 17436.91 $
So option C is correct 17437 $
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