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You are planning to save for retirement over the next 30 years. To do this, you...

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Finance

You are planning to save for retirement over the next 30 years.To do this, you will invest $700 a month in a stock account and$400 a month in a bond account. The return of the stock account isexpected to be 10 percent, and the bond account will pay 6 percent.When you retire, you will combine your money into an account with a9 percent return. Required: How much can you withdraw each monthfrom your account assuming a 20-year withdrawal period?(Do notround your intermediate calculations.) rev: 09_17_2012 $214,222.69$18,208.93 $17,851.89 $711,295.81 $17,494.85

Answer & Explanation Solved by verified expert
4.4 Ratings (875 Votes)

$17,851.89

Step-1:Calculation of future value of investment
# 1
Future value of stock investment = Monthly investment * Future value of annuity of 1
= $                   700 * 2260.487925
= $ 15,82,341.55
Working:
Future value of annuity of 1 = (((1+i)^n)-1)/i Where,
= (((1+0.008333)^360)-1)/0.008333 i 10%/12 = 0.008333
= 2260.487925 n 30*12 = 360
# 2
Future value of bonds investment = Monthly investment * Future value of annuity of 1
= $                   400 * 1004.515042
= $    4,01,806.02
Working:
Future value of annuity of 1 = (((1+i)^n)-1)/i Where,
= (((1+0.005)^360)-1)/0.005 i 6%/12 = 0.005
= 1004.515042 n 30*12 = 360
# 3
Future value of investment in 25 years = Future value of stock investment + Future value of bond investment
= $ 15,82,341.55 + $ 4,01,806.02
= $ 19,84,147.56
Step-2:Calculation of monthly withdrawal
Monthly withdrawal = Present value / Present value of annuity of 1
= $ 19,84,147.56 / 111.144954
= $       17,851.89
Working:
Present value of annuity of 1 = (1-(1+i)^-n)/i Where,
= (1-(1+0.0075)^-240)/0.0075 i 9%/12 = 0.0075
= 111.144954 n 20*12 = 240
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