MT217-Unit 2 Assignment
April 28, 2012
Question for Unit 2 Challenge Problem:
Today is your birthday and you are now 37! You are planning your retirement and have decided that you can save $8,000.00 per year to go toward your retirement. The plan is to make your first deposit one year from today. You found a mutual fund that is expected to provide a return of 7.5% per year. You plan to retire at the age of 65, exactly 28 years from today. It is your expectation that you will live for 25 years after your retirement. Under these assumptions, how much can you spend each year after you retire? Your first withdrawal will be made at the end of your first retirement year.
Solution to Unit 2 Challenge Problem:
From today to retirement, the time period is 28 years.
Future value of deposit:
By using the excel spreadsheet we can calculate the future value of deposited. Inset of FV in formula bar and take the value as Rate = 7.5%,
Nper = 28
PMT = 8000
By entering we can get the values as $701,434.48
At the time of retirement, he is expecting to live the life span of 25 years.
After retirement, he is expecting to have a life span of 25 years. Spending amount for each year after retirement:
By using excel, we can calculate the Spending amount.
Inset PMT in formula bar and take values,
Rate = 7.5%
Nper = 25
PV = 701,434.48
By entering we get the value as $62,926.16.
After retirement he will spend $62,926.16 for each year.