You estimate that by the time you retire in 35 years, you will have accumulated savings...

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Finance

You estimate that by the time you retire in 35 years, you willhave accumulated savings of $2.5 million.
a. If the interest rate is 10.5% and you live15 years after retirement, what annual level of expenditure willthose savings support? (Do not round intermediatecalculations. Round your answer to 2 decimalplaces.)
Annual expenditure
b. Unfortunately, inflation will eat into thevalue of your retirement income. Assume a 6% inflation rate andwork out a spending program for your $2.5 million in retirementsavings that will allow you to increase your expenditure in linewith inflation. What will be your expenditure amount in real termsfor each year of your retirement? (Do not roundintermediate calculations. Round your answer to 2decimal places.)
Real annual expenditure

Answer & Explanation Solved by verified expert

4.0 Ratings (775 Votes)

a Here rate105 nper15 PV25mnSo annual expenditure is 338120 per yearbFor first year of retirement real See Answer

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You estimate that by the time you retire in 35 years, you willhave accumulated savings of $2.5 million.a. If the interest rate is 10.5% and you live15 years after retirement, what annual level of expenditure willthose savings support? (Do not round intermediatecalculations. Round your answer to 2 decimalplaces.)Annual expenditureb. Unfortunately, inflation will eat into thevalue of your retirement income. Assume a 6% inflation rate andwork out a spending program for your $2.5 million in retirementsavings that will allow you to increase your expenditure in linewith inflation. What will be your expenditure amount in real termsfor each year of your retirement? (Do not roundintermediate calculations. Round your answer to 2decimal places.)Real annual expenditure