Assignment:
Let's now assume Tom chooses to get out and find a job in the private sector. He needs to start saving for retirement! His annual expenditures at age 65 will be $102,000 increasing approximately Si,200 per year (to adjust for inflation) He plans to invest in his 401k beginning in July (i.e, for the next 35 years) in order to provide an annuity that will provide the same standard of living he has now for 30 years once he retires (until age 95).
(a) If he has no initial principal, how much will be need to put away each year if he plans to retire at the end of Jun after he turns 65?
(b) If, on the other hand, Tom did have some initial principal, how much would he need to invest today?
(Assume Tom can find a stable bank that will provide him with a mutual fund making 6% APR compounded annually and that you can ignore taxes on any interest accrued)
Provide complete and step by step solution for the question and show calculations and use formulas.