Answer to Question #50304 in Microeconomics for Zakaria

Question

You are planning to retire in twenty years. You'll live ten years after retirement. You want to be able to draw out of your savings at the rate of $10,000 per year. How much would you have to pay in equal annual deposits until retirement to meet your objectives? Assume interest remains at 9% ?

thank you

Answer 1

FV = 10*$10,000, r = 9%, n = 20
In this case we use the formula FV = PV*(1+r)^n
PV*(1.09^1 + 1.09^2 + 1.09^3 + 1.09^4 + 1.09^5 + 1.09^6 + 1.09^7 + 1.09^8 + 1.09^9 + 1.09^10 + 1.09^11 + 1.09^12 + 1.09^13 + 1.09^14 + 1.09^15 + 1.09^16 + 1.09^17 + 1.09^18 + 1.09^19 + 1.09^20) = 10,000*10
PV =100,000/(1.09^1 + 1.09^2 + 1.09^3 + 1.09^4 + 1.09^5 + 1.09^6 + 1.09^7 + 1.09^8 + 1.09^9 + 1.09^10 + 1.09^11 + 1.09^12 + 1.09^13 + 1.09^14 + 1.09^15 + 1.09^16 + 1.09^17 + 1.09^18 + 1.09^19 + 1.09^20) = 1793.26