Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
15th Edition
ISBN: 9780134476315
Author: Chad J. Zutter, Scott B. Smart
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 5, Problem 5.22P
Learning Goal 3
P5-22 Retirement planning Hal Thomas, a 25-year-old college graduate, wishes to retire at age 65. To supplement other sources of retirement income, he can deposit $2,000 each year into a tax-deferred individual retirement arrangement (IRA). The IRA will earn a 10% return over the next 40 years.
- a. If Hal makes end-of-year 52,000 deposits into the IRA, how much will he have accumulated in 40 years when he turns 65?
- b. If Hal decides to wait until age 35 to begin making end-of-year $2,000 deposits into the IRA, how much will he have accumulated when he retires 30 years later?
- c. Using your findings in parts a and b, discuss the impact of delaying deposits into the IRA for 10 years (age 25 to age 35) on the amount accumulated by the end of Hal’s sixty-fifth year.
- d. Rework parts a, b, and c, assuming that Hal makes all deposits at the beginning, rather than end, of each year. Discuss the effect of beginning-of-year deposits on the
future value accumulated by the end of Hal's sixty-fifth year.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Problem Outline Part A
By the end of this year, you will be 35-years old, and you want to plan for your retirement. You wish to retire at the age of 65, and you expect to live 20 years after retirement. Upon retirement you wish to have an annual sum of $50,000 to supplement your social security benefits. Therefore, you opened your retirement account with a 7% annual interest rate. At retirement you liquidate your account and use the funds to buy an investment grade bond which makes $50,000 annual coupon payments based on a 6 % coupon rate throughout your retirement years.
What is the face value, not the actual value, of the bond that you will be investing in?
Calculate the monthly payment in your retirement account to be able to achieve the plan mentioned above.
How much will your inheritors receive?
Problem Outline Part B
Suppose you think if you were to retire right now, you would have needed $50,000 each year to supplement your social security and maintain your desired…
Part A:
By the end of this year, you will be 35-years old, and you want to plan for your retirement. You wish to retire at the age of 65, and you expect to live 20 years after retirement. Upon retirement you wish to have an annual sum of $50,000 to supplement your social security benefits. Therefore, you opened your retirement account with a 7% annual interest rate. At retirement you liquidate your account and use the funds to buy an investment grade bond which makes $50,000 annual coupon payments based on a 6 % coupon rate throughout your retirement years.
What is the face value, not the actual value, of the bond that you will be investing in?
Please calculate the monthly payment in your retirement account in order to be able to achieve the plan mentioned above.
How much will your inheritors receive?
Part A:
By the end of this year, you would be 35 years old and you want to plan for your retirement. You wish to retire at the age of 65 and you expect to live 20 years after retirement. Upon retirement, you wish to have an annual sum of $50,000 to supplement your social security benefits. Therefore, you opened now your retirement account with a 7% annual interest rate. At retirement, you liquidate your account and use the funds to buy an investment-grade bond which makes $50,000 annual coupon payments based on a 6 % coupon rate, throughout your retirement years.
How much will the face value of the bond that you will be investing? Please calculate the monthly payment in your retirement account in order to be able to achieve the plan mentioned above?
How much will your inheritors receive?
Chapter 5 Solutions
Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
Ch. 5.1 - What is the difference between future value and...Ch. 5.1 - Define and differentiate among the three basic...Ch. 5.2 - Prob. 5.3RQCh. 5.2 - Prob. 5.4RQCh. 5.2 - Prob. 5.5RQCh. 5.2 - Prob. 5.6RQCh. 5.2 - Prob. 5.7RQCh. 5.3 - What is the difference between an ordinary annuity...Ch. 5.3 - What are the most efficient ways to calculate the...Ch. 5.3 - How can the formula for the future value of an...
Ch. 5.3 - Prob. 5.13RQCh. 5.3 - What is a perpetuity? Why is the present value of...Ch. 5.4 - How do you calculate the future value of a mixed...Ch. 5.5 - What effect does compounding interest more...Ch. 5.5 - Prob. 5.21RQCh. 5.5 - Differentiate between a nominal annual rate and an...Ch. 5.6 - How can you determine the size of the equal,...Ch. 5.6 - Prob. 5.27RQCh. 5.6 - How can you determine the unknown number of...Ch. 5 - Learning Goals 2, 5 ST5-1 Future values for...Ch. 5 - Learning Goal 3 ST5-2 Future values of annuities...Ch. 5 - Prob. 5.3STPCh. 5 - Learning Goal 6 ST5-4 Deposits needed to...Ch. 5 - Assume that a firm makes a 2,500 deposit into a...Ch. 5 - Prob. 5.2WUECh. 5 - Prob. 5.3WUECh. 5 - Your firm has the option of making an investment...Ch. 5 - Joseph is a friend of yours. He has plenty of...Ch. 5 - Jack and Jill have just had their first child. If...Ch. 5 - Prob. 5.1PCh. 5 - Learning Goal 2 P5-2 Future value calculation...Ch. 5 - Prob. 5.4PCh. 5 - Prob. 5.5PCh. 5 - Learning Goal 2 P5- 6 Time value As part of your...Ch. 5 - Learning Goal 2 P5-7 Time value you can deposit...Ch. 5 - Learning Goal 2 P5-8 Time value Misty needs to...Ch. 5 - Learning Goal 2 P5- 9 Single-payment loan...Ch. 5 - Prob. 5.10PCh. 5 - Prob. 5.11PCh. 5 - Prob. 5.12PCh. 5 - Prob. 5.13PCh. 5 - Time value An Iowa state savings bond can be...Ch. 5 - Time value and discount rates You just won a...Ch. 5 - Prob. 5.16PCh. 5 - Cash flow investment decision Tom Alexander has an...Ch. 5 - Learning Goal 2 P5-18 Calculating deposit needed...Ch. 5 - Future value of an annuity for each case in the...Ch. 5 - Present value of an annuity Consider the following...Ch. 5 - Learning Goal 3 P5-21 Time value: Annuities Marian...Ch. 5 - Learning Goal 3 P5-22 Retirement planning Hal...Ch. 5 - Learning Goal 3 P5-23 Value of a retirement...Ch. 5 - Learning Goal 2, 3 P5-25 Value of an annuity...Ch. 5 - Prob. 5.26PCh. 5 - Prob. 5.30PCh. 5 - Learning Goal 4 P5-31 Value of a single amount...Ch. 5 - Value of mixed streams Find the present value of...Ch. 5 - Prob. 5.33PCh. 5 - Prob. 5.34PCh. 5 - Prob. 5.36PCh. 5 - Prob. 5.37PCh. 5 - Changing compounding frequency Using annual,...Ch. 5 - Prob. 5.39PCh. 5 - Prob. 5.40PCh. 5 - Compounding frequency and time value You plan to...Ch. 5 - Learning Goals 3, 5 P5-42 Annuities and...Ch. 5 - Prob. 5.43PCh. 5 - Prob. 5.44PCh. 5 - Prob. 5.45PCh. 5 - Prob. 5.46PCh. 5 - Prob. 5.47PCh. 5 - Loan amortization schedule Joan Messineo borrowed...Ch. 5 - Prob. 5.49PCh. 5 - Prob. 5.50PCh. 5 - Prob. 5.52PCh. 5 - Prob. 5.53PCh. 5 - Prob. 5.54PCh. 5 - Prob. 5.55PCh. 5 - Prob. 5.56PCh. 5 - Prob. 5.57PCh. 5 - Number of years needed to acccumulate a future...Ch. 5 - Prob. 5.59PCh. 5 - Prob. 5.60PCh. 5 - Time to repay Installment loan Mia Saito wishes to...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Retirement planning Hal Thomas, a 25-year-old college graduate, wishes to retire at age 65. To supplement other sources of retirement income, he can deposit $2,000 each year into a tax-deferred individual retirement arrangement (IRA). The IRA will earn a 10% return over the next 40 years. a. If Hal makes annual ênd-of-year $2,000 deposits into the IRA, how much will be have accumulated by the end of his sixty-fifth year? b. If Hal decides to wait until age 35 to begin making annual end-of-year $2,000 deposits into the IRA, how much will he have accumulated by the end of his sixty-fifth year? c. Using your findings in parts a and b, discuss the impact of delaying making de- posits into the IRA for 10 years (age 25 to age 35) on the amount accumulated by the end of Hal's sixty-fifth year. d. Rework parts a, b, and c, assuming that Hal makes all deposits at the beginning, rather than the end, of each year. Discuss the effect of beginning-of-year deposits on the future value accumulated by…arrow_forwardCreating a retirement fund Personal Finance Problem To supplement your retirement, you estimate that you need to accumulate $220,000 exactly 45 years from today. You plan to make equal, end-of-year deposits into an account paying 8% annual interest. a. How large must the annual deposits be to create the $220,000 fund by the end of 45 years? b. If you can afford to deposit only $440 per year into the account, how much will you have accumulated in 45 years? (---) a. The annual deposits to create the $220,000 fund by the end of 45 years should be $. (Round to the nearest cent.)arrow_forwardHow much money does Suzie need to have in her retirement savings account today if she wishes to withdraw $25 000 at the end of each year for 30 years? She expects to earn an average rate of return of 6%. $324 642.24 $331 288.67 $333 333.33 $344 120.78arrow_forward
- Excel Online Structured Activity: Required annuity payments Your father is 50 years old and will retire in 10 years. He expects to live for 25 years after he retires, until he is 85. He wants a fixed retirement income that has the same purchasing power at the time he retires as $60,000 has today. (The real value of his retirement income will decline annually after he retires.) His retirement income will begin the day he retires, 10 years from today, at which time he will receive 24 additional annual payments. Annual inflation is expected to be 3%. He currently has $160,000 saved, and he expects to earn 7% annually on his savings. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below. X Open spreadsheet How much must he save during each of the next 10 years (end-of-year deposits) to meet his retirement goal? Do not round your intermediate calculations. Round your answer to the nearest…arrow_forwardExcel Online Structured Activity: Required annuity payments Your father is 50 years old and will retire in 10 years. He expects to live for 25 years after he retires, until he is 85. He wants a fixed retirement income that has the same purchasing power at the time he retires as $45,000 has today. (The real value of his retirement income will decline annually after he retires.) His retirement income will begin the day he retires, 10 years from today, at which time he will receive 24 additional annual payments. Annual inflation is expected to be 3%. He currently has $220,000 saved, and he expects to earn 7% annually on his savings. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below. Open spreadsheet, here is the spreadsheet. How much must he save during each of the next 10 years (end-of-year deposits) to meet his retirement goal? Do not round your intermediate calculations.…arrow_forwardExcel Online Structured Activity: Required annuity payments Your father is 50 years old and will retire in 10 years. He expects to live for 25 years after he retires, until he is 85. He wants a fixed retirement income that has the same purchasing power at the time he retires as $55,000 has today. (The real value of his retirement income will decline annually after he retires.) His retirement income will begin the day he retires, 10 years from today, at which time he will receive 24 additional annual payments. Annual inflation is expected to be 5%. He currently has $65,000 saved, and he expects to earn 8% annually on his savings. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below. Open spreadsheet How much must he save during each of the next 10 years (end-of-year deposits) to meet his retirement goal? Do not round your intermediate calculations. Round your answer to the nearest cent.…arrow_forward
- Excel Online Structured Activity: Required annuity payments Your father is 50 years old and will retire in 10 years. He expects to live for 25 years after he retires, until he is 85. He wants a fixed retirement income that has the same purchasing power at the time he retires as $40,000 has today. (The real value of his retirement income will decine annually after he retires.) His retirement income will begin the day he retires, 10 years from today, at which time he will receive 24 additional annual payments. Annual inflation is expected to be 6%. He currently has $245,000 saved, and he expects to earn 8% annually on his savings. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below. Open spreadsheet How much must he save during each of the next 10 years (end-of-year deposits) to meet his retirement goal? Do not round your intermediate calculations. Round your answer to the nearest cent.…arrow_forwardHow much money does Suzie need to have in her retirement savings account today if she wishes to withdraw $25,000 a year for 3 years? She expects to earn an average rate of return of 13 percent. A. $59,028.81 OB. $65,419.81 OC. $71,533.33 OD. $85,160.98 E. $87,391.34arrow_forwardVideo Excel Online Structured Activity: Required annuity payments Your father is 50 years old and will retire in 10 years. He expects to live for 25 years after he retires, until he is 85. He wants a fixed retirement income that has the same purchasing power at the time he retires as $55,000 has today. (The real value of his retirement income will decipie annually after he retires.) His retirement income will begin the day he retires, 10 years from today, at which time he will receive 24 additional annual payments. Annual inflation is expected to be 3%. He currently has $65,000 saved, and he expects to earn 10% annually on his savings. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below. X Open spreadsheet How much must he save during each of the next 10 years (end-of-year deposits) to meet his retirement goal? Do not round your intermediate calculations. Round your answer to the…arrow_forward
- Practice 1 Your friend is celebrating her 35th birthday today and wants to start saving for her anticipated retirement at age 65 (she will retire on her 65th birthday). She would like to be able to withdraw $80,000 from her savings account on each birthday for 20 years following her retirement (the first withdrawal will be on her 66th birthday). Your friend intends to invest her money in the local savings bank which offers 4% p.a. compound semi-annually. She wants to make equal annual deposits on each birthday in a new savings account she will establish for her retirement fund. If she starts making these deposits TODAY and continues to make deposits until she is 65 (the last deposit will be on her 65th birthday), what amount must she deposit annually to be able to make the desired withdrawals upon retirement? Any intermediate steps should be rounded to 4 or more decimal places.arrow_forwardVideo Excel Online Structured Activity: Required annuity payments Your father is 50 years old and will retire in 10 years. He expects to live for 25 years after he retires, until he is 85. He wants a fixed retirement income that has the same purchasing power at the time he retires as $40,000 has today. (The real value of his retirement income will decline annually after he retires.) His retirement income will begin the day he retires, 10 years from today, at which time he will receive 24 additional annual payments. Annual inflation is expected to be 5%. He currently has $245,000 saved, and he expects to earn 10% annually on his savings. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below. X Open spreadsheet How much must he save during each of the next 10 years (end-of-year deposits) to meet his retirement goal? Do not round your intermediate calculations. Round your answer to the…arrow_forward
arrow_back_ios
arrow_forward_ios
Recommended textbooks for you
PFIN (with PFIN Online, 1 term (6 months) Printed...FinanceISBN:9781337117005Author:Randall Billingsley, Lawrence J. Gitman, Michael D. JoehnkPublisher:Cengage Learning
Pfin (with Mindtap, 1 Term Printed Access Card) (...FinanceISBN:9780357033609Author:Randall Billingsley, Lawrence J. Gitman, Michael D. JoehnkPublisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
Financial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage Learning
PFIN (with PFIN Online, 1 term (6 months) Printed...
Finance
ISBN:9781337117005
Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher:Cengage Learning
Pfin (with Mindtap, 1 Term Printed Access Card) (...
Finance
ISBN:9780357033609
Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning
Financial Accounting: The Impact on Decision Make...
Accounting
ISBN:9781305654174
Author:Gary A. Porter, Curtis L. Norton
Publisher:Cengage Learning
5 Steps to Setting Achievable Financial Goals | Brian Tracy; Author: Brian Tracy;https://www.youtube.com/watch?v=aXDuLxEJqBo;License: Standard Youtube License