Question

ou wish to retire in 20 years, at which time you want to have accumulated enough money to receive an annual annuity of $32,000 for 25 years after retirement. During the period before retirement you can earn 8 percent annually, while after retirement you can earn 10 percent on your money. What annual contributions to the retirement fund will allow you to receive the $32,000 annuity

Answer 1

Annual contributions to the retirement fund will be $6,347.31

Step-by-step explanation:

First find the Present Value of the Annuity giving payments of $32,000 annually for 25 years at the rate of 10%.

Using a Financial Calculator enter the following data

PMT = $32,000

P/y = 1

N = 25

R = 10%

FV = 0

Thus, the Present Value, PV is $290,465.28

At the time of retirement (in 20 years time) the Value of the annuity fund is $290,465.28.

Next we need to find the Payments PMT to reach this amount in 20 years time at the interest rate of 8%

Using a Financial Calculator enter the following data

FV = $290,465.28

N = 20

R = 8 %

PV = $0

Thus, the Payments, PMT required will be $6,347.3080

Conclusion :

Annual contributions to the retirement fund will be $6,347.31