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P4-23 Funding Your Retirement

P4-23 Funding Your Retirement
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Solution Guide / Answer Key:


Finance 419 (FIN 419)
Business Finance

Principles of Managerial Finance
Brief Fourth 4th Edition
Lawrence J. Gitman

Prepare responses to the following problems from the text:

Chapter 4

P4-23. LG 3: Funding Your Retirement

You plan to retire in exactly 20 years. Your goal is to create a fund that will allow you to receive $20,000 at the end of each year for the 30 years between retirement and death (a psychic told you that you will die exactly 30 years after you retire). You know you will be able to earn 11% per year during the 30-year retirement period.
a) How large a fund will you need when you retire in 20 years to provide the 30-year, $20,000 retirement annuity?
b) How much will you need today as a single amount to provide the fund calculated in part (a) if you earn only 9% per year during the 20 years preceding retirement?
c) What effect would an increase in the rate you can earn both during and prior to retirement have on the values found in part (a) and (b)?



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