Problem:
Sandy is planing his retirement.The rate of interest that he can lend and borrow at the bank is 6 percent. He currently has $ 125000 in the bank. He intends to buy a car 3 years from now. He estimates it wil cost $ 55000 then. He would like to buy his mother a house 10 years from now. He estimates it will cost $ 230000 then. Sandy plans to retire in 20 years and his estimated annual living expenses after retirement is $ 100000. Sandy would like to withdraw $ 100000 per year from his saving acccount with the first withdrawal being 21 years from now and the last being 40 years from now.
Required:
Question 1: What is present value of all Sandy's expected future expenses?
Question 2: What is the constant amount he needs to save in the bank each year assuming the first time he puts away money is 1 year from now and the last time is 20 years from now?
Note: Provide support for rationale.