Question

You plan to retire in 25 years and want to accumulate enough by then to provide yourself with $40,000 a year for 17 years. a. If the interest rate is 10%, how much must you accumulate by the time you retire? b. How much must you save each year until retirement in order to finance your retirement consumption? c. Now you remember that the annual inflation rate is 4%. If a loaf of bread costs $1 today, what will it cost by the time you retire? d. You really want to consume $30,000 a year in real dollars during retirement and wish to save an equal real amount each year until then. What is the real amount of savings that you need to accumulate by the time you retire? e. Calculate the required preretirement real annual savings necessary to meet your consumption goals. f. What is the nominal value of the amount you need to save during the first year? (Assume the savings are put aside at the end of each year.) g. What is the nominal value of the amount you need to save during the 25th year?

          You plan to retire in 25 years and want to accumulate enough by then to provide yourself with $40,000 a year for 17 years.
a. If the interest rate is 10%, how much must you accumulate by the time you retire?
b. How much must you save each year until retirement in order to finance your retirement consumption?
c. Now you remember that the annual inflation rate is 4%. If a loaf of bread costs $1 today, what will it cost by the time you retire?
d. You really want to consume $30,000 a year in real dollars during retirement and wish to save an equal real amount each year until then. What is the real amount of savings that you need to accumulate by the time you retire?
e. Calculate the required preretirement real annual savings necessary to meet your consumption goals.
f. What is the nominal value of the amount you need to save during the first year? (Assume the savings are put aside at the end of each year.)
g. What is the nominal value of the amount you need to save during the 25th year?

Added by Derrick H.

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