You would like to have $50,000 in 15 years. To accumulate this amount, you plan to deposit each year an equal sum in the bank, which will earn 7%, compounded annually. Your first payment will be made at the end of the year.
Required
(a) How much must you deposit annually to accumulate this amount?
(b) If you decide to make a lump-sum deposit today instead of the annual deposits, how large should this lump-sum deposit be? (Assume you can earn 1% on this deposit.)
(c) At the end of five years, you will receive $10,000 and deposit this in the bank towards your goal of $50,000 at the end of 15 years.
In addition to this deposit, how much must you deposit in equal annual deposits in order to reach your goal? (Assume you can earn 7% on this deposit.)
Assume a world without inflation. Janice Lewisberg, 38, plans to retire at age 68. Her life expectancy is age 90.
She wants to live a retirement lifestyle that will cost $35,000 per year, payable at the beginning of each year. She now has $20,000 in her investment account and plans to invest an equal amount annually for her retirement. The rate of interest that she expects to earn is 6%.