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1) Stuart is thinking about retiring soon, as he has been saving his entire working life
1) Stuart is thinking about retiring soon, as he has been saving his entire working life. To maintain his lifestyle, he needs to get $80,000 per year in income from his investments. If he wants to plan to receive this for 30 years, how much would he need in his retirement account today to fund this? Assume that he can earn 6% per year on his investments.
A) Approximately $0.8 million
B) Approximately $1.1 million
C) Approximately $1.5 million
D) Approximately $2.2 million
2) Alison has decided to start contributing to a retirement savings plan. She will contribute $5000 per year, and expects this to earn 8% return. If she does this for 40 years, how much will she have at the end?
A) Approximately $1.3 million
B) Approximately $1.4 million
C) Approximately $2.4 million
D) Approximately $2.6 million
Expert Solution
1) We can calculate the present value by using the following formula in excel:-
=-pv(rate,nper,pmt,fv)
Here,
PV = Present value
Rate = 6%
Nper = 30 periods
Pmt = $80,000
FV = $0
Substituting the values in formula:
= -pv(6%,30,80000,0)
= $1,101,186.49 Or $1.1 million
Correct option is B) Approximately $1.1 million
2) We can calculate the future value by using the following formula in excel:-
=fv(rate,nper,-pmt,pv)
Here,
FV = Future value
Rate = 8%
Nper = 40 periods
Pmt = $5,000
FV = $0
Substituting the values in formula:
= fv(8%,40,-5000,0)
= $1,295,282.59 Or $1.3 million
Correct option is A) Approximately $1.3 million
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