xt 5 years.
Example:Funding a Retirement Program
A 35-year old investor wants to retire in 25 years at age 60. Given he expects to earn 12.5% on his investments prior to his retirement, and then 10% thereafter, how much must he deposit annually (at the end of each year) for the next 25 years in order to be able to withdraw $25,000 per year (at the beginning of each year) for the next 30 years?
This is a two-part problem. First, use PV to compute the present value of the 30-year, $25,000 annuity due and second, use FV to find the amount of the fixed annual deposits that must be made at the end of the first 25-year period to come up with the needed funds.
Step 1:N = 29, I/Y = 10, PMT = 25,000; CPTPV = 234,240 + 25,000 = $259,240
Step 2: N = 25, I/Y = 12.5, FV =259,240;CPT PMT = $1,800.02
The investor will need a nest egg of $259,240. He will then have to put away $1,800 per year at the end of each of the next 25 years in order to accumulate a nest egg worth $259,240 - which will enable him to withdraw $25,000 per year for the following 30 years.
1.B: Statistical Concepts and Market Returns
a: Differentiate between a po