Dr. Taylor started a savings plan for her retirement when she was 35 years old. She intends to retire at 65. She opened a retirement savings account with an Insurance company. Her savings plan was set up as follows:
1st. part: She indends to deposit $5,000 at the of the first year, and the increment it by the same amount every year for 10 years. The Ins.company guatantees her an interest rate of 6% compounded annually.
2nd. part: She will continue with the same original deposit of $5,000 at the of the year and increment it annually by 10% every year for another 10 years at the same interest rate of 6%.
3rd. part: She will continue with the same original deposit of $5,000 at the end of year and increment it annually by by the same invetment rate that she is guaranteed, namely 6% for the last 10 year.
How much money will she have saved in her retirement account, and would it be sufficient to pay her an ordinary annuity of $100,000 per year for 25 years at the same rate of 6% comp. annually?.
MBA Test Question? How many marks would I get if I got right??????!!!!!
1st. part- Dr. Taylor should have saved this amount=$850,103.36.
2nd. part- Dr. Taylor should have saved this amount=$580,544.54.
3rd. part- Dr. Taylor should have saved this amount=$84,473.95.
The grand total of the above three sums comes to=$1,515,121.85
This amount will enable Dr. Taylor to withdraw an annual annuity payment of $118,523.01 every year for 25 years. So, the answer is certainly "Yes"!.
The formulae used to calculate these amounts are in your book!. If you don't know which ones to use, then I would say, you are in trouble!!!.
