1. After graduation, you plan to work for Johnson Corporation for 7 years and then start your own business.
You expect to save and deposit $4,000 a year for the first 3 years (t = 1 through t = 3 and $14,000 annually for the following 4 years (t = 4 through t = 7). The first deposit will be made a year from today.
In addition, your grandfather gave you a $20,000 graduation gift which you will deposit at the end of year one. If the account earns 11% compounded annually, how much will you have when you start your business 7 years from now?
2. Your sister turned 25 today, and she is planning to save $3,500 per year for retirement, with the first deposit to be made one year from today.
She will invest in a mutual fund that's expected to provide a return of 7% per year. She plans to retire 40 years from today, when she turns 65, and she expects to live for 25 years after retirement, to age 90.
Under these assumptions, how much can she spend each year after she retires? Her first withdrawal will be made at the end of her first retirement year and she will earn 7% per year.
Show formula and step by step how you got the answer.