7. (4.24) A man is planning to retire in 20 years. He can deposit money for his retirement at 8% compounded monthly. It is estimated that the future general inflation (f?) rate will be 3% compounded monthly. What deposit, in terms of constant dollars, must be made each month until the man retires so that he can make annual withdrawals of $20,000, in terms of actual dollars, over the 15 years following his retirement? (Assume that his first withdrawal occurs at the end of the first year after his retirement.)
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08/12 = 0.0066667 per month. The inflation rate is 3% compounded monthly, which is 0.03/12 = 0.0025 per month. So, r = (1 + 0.0066667) / (1 + 0.0025) - 1 = 0.0041667 per month, or about 5.00% per year. Show more…
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