Question

An investor has $25,000 that he can invest today. In addition to this amount, he can also invest $12,000 per year for 30 years (beginning one year from now) at which time he will retire. He plans on living for 25 years after he retires. If interest rates are 8 percent, what size annual annuity payment can he obtain for his retirement years? (All annuity payments are at year-end. Round your answer to the nearest dollar.)ÿÿ

Answer 1

Answer:

Explanation:

First, find the Future Value (FV) of the annuity deposits and the one time payment. You can do that using a financial calculator with the following inputs;

N = 30

I/Y = 8%

PV = -25,000

PMT = 12,000

then compute the future value ; CPT FV = $1,610,964.96

Next, the $1,610,964.96 the amount the investor will have at the beginning of retirement in order to make annual withdrawals. Therefore, that would be the new PV you will use to find the annuity amount as follows;

N = 25

I/Y = 8%

PV = -1,610,964.96

FV = 0

then compute annual deposits; CPT PMT = $150,913