(Complex annuity payments) Milhouse, 20, is about to begin his career as a rocket scientist for a NASA contractor. As a rocket scientist, Milhouse knows that he should begin saving for retirement immediately. Part of his inspiration came from reading an article on Social Security in Time. The article indicated that the ratio of workers paying taxes to retirees collecting checks will drop dramatically in the future. In fact, the number will drop to 2 workers for every retiree in 2040. Milhouse's retirement plan allows him to make equal yearly contributions, and it pays 15 percent interest annually. Upon retirement, Milhouse plans to buy a new boat, which he estimates will cost him $200,000 in 40 years, which is when he plans to retire (at age 60). He also estimates that in order to live comfortably he will require a yearly income of $85,000 for each year after he retires. Based on his family history, Milhouse expects to live until age 80 (that is, he would like to receive 20 payments of $85,000 at the end of each year). When he retires, Milhouse will purchase his boat in one lump sum and place the remaining balance into an account that pays 7 percent interest, from which he will withdraw his $85,000 per year. If Milhouse's first contribution is made one year from today, and his last is made the day he retires, how much money must he contribute each year to his retirement fund? a. How much money should Milhouse have in the retirement fund to achieve the goal when he retires? (Round to the nearest cent.)
(Complex annuity payments) Milhouse, 20, is about to begin his career as a rocket scientist for a NASA contractor. As a rocket scientist, Milhouse knows that he should begin saving for retirement immediately. Part of his inspiration came from reading an article on Social Security in Time. The article indicated that the ratio of workers paying taxes to retirees collecting checks will drop dramatically in the future. In fact, the number will drop to 2 workers for every retiree in 2040. Milhouse's retirement plan allows him to make equal yearly contributions, and it pays 15 percent interest annually. Upon retirement, Milhouse plans to buy a new boat, which he estimates will cost him $200,000 in 40 years, which is when he plans to retire (at age 60). He also estimates that in order to live comfortably he will require a yearly income of $85,000 for each year after he retires. Based on his family history, Milhouse expects to live until age 80 (that is, he would like to receive 20 payments of $85,000 at the end of each year). When he retires, Milhouse will purchase his boat in one lump sum and place the remaining balance into an account that pays 7 percent interest, from which he will withdraw his $85,000 per year. If Milhouse's first contribution is made one year from today, and his last is made the day he retires, how much money must he contribute each year to his retirement fund? a. How much money should Milhouse have in the retirement fund to achieve the goal when he retires? (Round to the nearest cent.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Transcribed Image Text:(Complex annuity payments) Milhouse, 20, is about to begin his career as a rocket scientist for a NASA contractor. As a rocket scientist, Milhouse knows
that he should begin saving for retirement immediately. Part of his inspiration came from reading an article on Social Security in Time. The article indicated
that the ratio of workers paying taxes to retirees collecting checks will drop dramatically in the future. In fact, the number will drop to 2 workers for every
retiree in 2040. Milhouse's retirement plan allows him to make equal yearly contributions, and it pays 15 percent interest annually. Upon retirement, Milhouse
plans to buy a new boat, which he estimates will cost him $200,000 in 40 years, which is when he plans to retire (at age 60). He also estimates that in order
to live comfortably he will require a yearly income of $85,000 for each year after he retires. Based on his family history, Milhouse expects to live until age 80
(that is, he would like to receive 20 payments of $85,000 at the end of each year). When he retires, Milhouse will purchase his boat in one lump sum and
place the remaining balance into an account that pays 7 percent interest, from which he will withdraw his $85,000 per year. If Milhouse's first contribution is
made one year from today, and his last is made the day he retires, how much money must he contribute each year to his retirement fund?
a. How much money should Milhouse have in the retirement fund to achieve the goal when he retires?
(Round to the nearest cent.)
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