You have saved up some money for your retirement. You end up living 20 years after your retirement. The interest rate is 6%. The first year you receive $50,000 from your retirement account and then each following year you receive $2000 more due of Cost-of-Living adjustment. Meaning, in year 1 you receive $50,000, year 2 $52,000, year3 $54000, etc. How much money had you saved for retirement.
You have saved up some money for your retirement. You end up living 20 years after your retirement. The interest rate is 6%. The first year you receive $50,000 from your retirement account and then each following year you receive $2000 more due of Cost-of-Living adjustment. Meaning, in year 1 you receive $50,000, year 2 $52,000, year3 $54000, etc. How much money had you saved for retirement.
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
You have saved up some money for your retirement. You end up living 20 years after your retirement. The interest rate is 6%. The first year you receive $50,000 from your retirement account and then each following year you receive $2000 more due of Cost-of-Living adjustment. Meaning, in year 1 you receive $50,000, year 2 $52,000, year3 $54000, etc. How much money had you saved for retirement.
Do not use excel, please work the problem out. Also include cashflow diagram if possible.
Expert Solution
Step 1
| Year | Cash Flows | PVF @6% | PV of cash flows ($) |
| 1 | 50,000 | 0.9434 | 47,170 |
| 2 | 52,000 | 0.8900 | 46,280 |
| 3 | 54,000 | 0.8396 | 45,339 |
| 4 | 56,000 | 0.7921 | 44,357 |
| 5 | 58,000 | 0.7473 | 43,341 |
| 6 | 60,000 | 0.7050 | 42,298 |
| 7 | 62,000 | 0.6651 | 41,234 |
| 8 | 64,000 | 0.6274 | 40,154 |
| 9 | 66,000 | 0.5919 | 39,065 |
| 10 | 68,000 | 0.5584 | 37,971 |
| 11 | 70,000 | 0.5268 | 36,875 |
| 12 | 72,000 | 0.4970 | 35,782 |
| 13 | 74,000 | 0.4688 | 34,694 |
| 14 | 76,000 | 0.4423 | 33,615 |
| 15 | 78,000 | 0.4173 | 32,547 |
| 16 | 80,000 | 0.3936 | 31,492 |
| 17 | 82,000 | 0.3714 | 30,452 |
| 18 | 84,000 | 0.3503 | 29,429 |
| 19 | 86,000 | 0.3305 | 28,424 |
| 20 | 88,000 | 0.3118 | 27,439 |
| Total= | $7,47,957 | ||
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