Question: Mr. D. plans to retire exactly twenty years from now (t=0), and he would like to have accumulated. by retirement enough money to enjoy a $100.000 per year retirement income beginning in year 2l and continuing in perpetuity thereafter. So far he has saved up $50,000, all in stocks that is, at t=0 his pension account contains S50,000.
a) What must his annual contributions be if he is to achieve his goal (assume he makes 20 payments)? On average he expects to earn 10% on his money.
b) The stock market, collapses: By the end of the day (it is, still t=0)his accumulated wealth has fallen to $30,000. Assuming he still expects on average to earn 10%, how much must he now contribute (assume 20 equal payments)?