Mike and Sheila Parker have determined that they need a retirement fund of $2,000,000 at their...

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Mike and Sheila Parker have determined that they need aretirement fund of $2,000,000 at their planned retirement in 30years; they want to begin a savings program this year to meet thisgoal. They anticpate that they can earn an average7% after taxreturn on their retirement savings and they want to plan for 5%annual inflation. What level annual end-of-year savings amount willenable the Parkers to accumulate their targeted retirementfund?

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	Retirement Fund required at todays dollar	$2,000,000
	Annual Inflation Rate=5%	0.05
Nper	Number of years to retirement	30
Fv	Retirement Fund required in actual dollar	$8,643,885	(2000000*(1.05^30)
Rate	Average after tax return=7%	0.07
PMT	Annual end of year savings required	$91,507.65	(Using PMT function of excelwith Rate=0.07, Nper=30, Fv=-8643885)
	Excel Command:PMT(0.07,30,,-8643885)

	This problem can also be solved using factor formula
	Sinking Fund Factor(SFF)=(A/F,I,N)=i/(((1+i)^N)-1)
	i=Average after tax return=0.07,
	N=Number of Years=30
	SFF=(A/F, 7%, 30)=0.07/((1.07^30)-1)=	0.010586404
	Annual end of year savings required=SFF*8643885=	$91,507.65

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Mike and Sheila Parker have determined that they need aretirement fund of $2,000,000 at their planned retirement in 30years; they want to begin a savings program this year to meet thisgoal. They anticpate that they can earn an average7% after taxreturn on their retirement savings and they want to plan for 5%annual inflation. What level annual end-of-year savings amount willenable the Parkers to accumulate their targeted retirementfund?

Mike and Sheila Parker have determined that they need a retirement fund of $2,000,000 at their...

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70.2K

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Finance

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