Question

You wish to retire in 20 years, at which time you want to have accumulated enough money to receive an annual annuity of $30,000 for 25 years after retirement. During the period before retirement you can earn 11 percent annually, while after retirement you can earn 13 percent on your money. What annual contributions to the retirement fund will allow you to receive the $30,000 annuity

Answer 1

$3,425.08

Step-by-step explanation:

The computation of the annual contributions to the retirement fund is shown below:

The Present value of the annuity is

= $30,000 × [1 - (1 ÷ (1 + 13%)^25)] ÷ 13%

= $219,899.55

Now

Future value of annuity = P×[(1+r)^n-1]÷r

$219,899.55 = P×[(1+11%)^20-1]÷11%

Hence, Annual contribution required, P = $3,425.08