Question

You are planning to save for retirement over the next 25 years. To do this, you will invest $760 a month in a stock account and $360 a month in a bond account. The return of the stock account is expected to be 9.6 percent, and the bond account will pay 5.6 percent. When you retire, you will combine your money into an account with an 6.6 percent return. How much can you withdraw each month from your account assuming a 20-year withdrawal period? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) SOME ONE GAVE THE ANSWER $9,576.16 per month for 20 year AND IT WAS WRONG.

Answer 1

The amount that you can withdraw each month from your account assuming a 20-year withdrawal period is:

= $8,860.36.

Step-by-step explanation:

a) The future value of $760 invested monthly at 9.6% per annum for 25 years is:

= $949,787.51

b) The future value of $360 invested monthly at 5.6% per annum for 25 years is:

= $235,764.89

c) Total future value of savings = $1,185,552.40 ($949,787.51 + $235,764.89)

d) The amount that can be withdrawn monthly = $8,860.36

See calculations below:

N (# of periods) 300

I/Y (Interest per year) 9.6

PV (Present Value) 0

PMT (Periodic Payment) 760

Results

FV = $949,787.51

Sum of all periodic payments $228,000.00

Total Interest $721,787.51

N (# of periods) 300

I/Y (Interest per year) 5.6

PV (Present Value) 0

PMT (Periodic Payment) 360

Results

FV = $235,764.89

Sum of all periodic payments $108,000.00

Total Interest $127,764.89

N (# of periods) 240

I/Y (Interest per year) 6.6

PV (Present Value) 1185552.40

FV (Future Value) 0

Results

PMT = $8,860.36

Sum of all periodic payments $2,126,487.18

Total Interest $940,934.78