
a)
To determine: The amount that to accumulate by the time of retirement.
a)

Explanation of Solution
Computation of present value is as follows:
Therefore, the present value is $228,183.
b)
To determine: The savings amount required per year to finance the retirement consumption.
b)

Explanation of Solution
Computation of savings amount required per year to finance the retirement consumption is as follows:
The present value of the savings of 30 year stream will be same as this present value, therefore:
Therefore, the required annual savings is $1,387.18.
c)
To determine: The cost of loaf of bread at the time of retirement.
c)

Explanation of Solution
Computation of cost of loaf of bread at the time of retirement is as follows:
Therefore, the cost of loaf of bread at the time of retirement is $3.24.
d)
To determine: The real amount of saving.
d)

Explanation of Solution
Computation of real amount of saving is as follows:
Therefore, the real amount of saving is $295,796.61.
e)
To determine: The predetermined real annual savings.
e)

Explanation of Solution
Computation of predetermined real annual savings is as follows:
The
The savings amount is comparatively higher than in the alternate situation because the rate at which
f)
To determine: The nominal value of saving.
f)

Explanation of Solution
Computation of nominal value of saving is as follows:
If the real amount saved is $3,895.66 and prices rise at 4% per year, then the amount saved at the end of 1 year, in nominal terms it will be $4,051.49
f)
To determine: The nominal value of saving in the 30th year.
f)

Explanation of Solution
Computation of nominal value of saving in the 30th year is as follows:
The 30th year will require nominal savings of $12,635.17
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Chapter 5 Solutions
EBK FUNDAMENTALS OF CORPORATE FINANCE
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