Question

Suppose that Rina is 35 years old and has no retirement savings. She wants to begin saving foc retirement, with the first payment coming one year from now. She can save $20,000 per year and will invest that amount in the stock market, where it is expected to yleid an average annual return of 12.00% return. Assume that this rate will be constant for the rest of her's life. In short, this scenario fits all the criteria of an ordinary annulty. Rina would like to calculate how much money she will have at age 60 . Use the following table to indicate which values you should enter on your financial caiculator. For example, if you are using the value of 1 for N, use the selection list above N in the table to select that value. Using a financial calculator yields a future value of this ordinary annulty to be approximately at age 60. Rina would now like to calculate how much money she will have at age 65 . Use the following table to indicate which values you should enter on your financlal cakculator. For exampie, if you are using the value of t for N, use the selection list above N in the table to select that value. Using a financial calculaton yields a future value of this ordinary annuity to be approximately at age 65. Rina expects to live for another 30 years if she retires at age 60 , with the same expected percent return on investments in the stock market. She would like to calculate how much she can withdraw at the end of each year after retirement. Use the following table to indicate which values you should enter on your financial calculator in order to solve for PMT in this scenario. For example, If you are using the value of 1 for N, use the selection list above N in the table to select that value. Using a financial calculator, you can calculate that Rina can withdraw at the end of each year after retirement (assuming retirement at age 60), assuming a fixed withdrawal each year and $0 remaining at the end of her life. Rina expects to live for another 25 years if she retires at age 65, with the same expected percent return al investments in the stock market. Use the following table to indicate which values you should enter on your financial calculator. For example, if you are using the value of I for N, use the selection list above N in the table to select that value. Using a financial calculator, you can calculate that Rina can withdraw at the end of each year after retirement at age 65 , assuming a fixed withdrawal each year and so remaining at the end of her life.

Answer 1

Using a financial calculator, Rina can determine the future value of her ordinary annuity at ages 60 and 65 by saving $20,000 annually with a 12% return. She can also calculate her annual retirement withdrawal based on her life expectancy and the accumulated amount, demonstrating the importance of early saving and compound interest.

Step-by-step explanation:

The question relates to the calculation of future value of an ordinary annuity and the amount that can be withdrawn annually in retirement, using a financial calculator. To find out how much Rina will have at age 60, she will save $20,000 per year for 25 years with a 12% return, which involves calculating the future value of an ordinary annuity. The same process would then be repeated to find the future value at age 65, with deposits for an additional 5 years. Finally, to determine how much Rina can withdraw each year after retirement, now dealing with an annuity due since she withdraws at the end of each year, a different calculation is required, which involves solving for the payment (PMT) given the future value, rate, and number of periods.

To calculate the annual withdrawal after retirement, we need the future value at retirement, the expected return rate, and the remaining life expectancy. For instance, with a future value accumulated, a 12% return rate, and a 30-year expectancy upon retirement at age 60, or a 25-year expectancy if retiring at age 65, we use the annuity due formula to solve for the fixed annual withdrawal. The power of compound interest significantly impacts these calculations, making saving early and consistently essential for a secure retirement.