After completing his Bachelor of Business (Accounting) degree, Jamie secured a permanent position as
an assistant accountant. Jamie’s financial plan is to retire in 30 years from now. So, he is thinking about creating a fund that will allow him to receive $32,000 at the end of each year for 25 years after his retirement. He is expecting to earn 6.75% per annum during the 25-year retirement period.
To provide the 25- year, $32,000 a year annuity, calculate how much should be in the fund account when Jamie retires in 30 years.
b. How much will Jamie need today as a single amount to provide the fund calculated in part
(a) if he earns 6.5% per year during the 30 years preceding retirement?
c. What effect would an increase in the interest rates, both during and prior to retirement, have on the values calculated in parts (a) and (b)? Explain why.
d. Assume that Jamie will earn 6.75% per annum on his savings during the 30 years preceding his retirement and 7.15% during the 25 years after his retirement. To fund the 25- year stream of $32,000 annual annuity payments, Jamie will be making end-of-year deposits for 30 years. How much does Jamie need to deposit annually?