Finance- By the end of each year, you contribute an equal amount

| January 30, 2017

Question
The desired format is Excel. Thank you!

By the end of each year, you contribute an equal amount of $3,000 to your retirement fund portfolio, which on average earns an annual return of 12.5% in the financial market. Such annual contributions continue until your retirement. (a) 30 years later you retire, how much money do you have in your portfolio by then? (b) For your post-retirement life (which last approximately another 20 years), every year you withdraw and spend an equal amount of annuity payment from your fund account. What would be the annual payment amount you spend if you do not want to leave any money to your heirs? (Hint: Even after you retire, will the financial market and your fund account retire then? That is, what will be the applicable interest rate or money growth rate for your post-retirement years?)

(c) Considering the long-term inflation rate amounts to 3.5% annually, how much money at real purchasing power will you actually have when you retire? How much should you withdraw and spend per year at real purchasing power for your post-retirement life? (Hint: Your stated “annual return of 12.5%” is just nominal in this case; just as your boss gives you an annual salary raise of 3%, but how much real-purchasing-power “raise” you are getting per year actually, considering the annual inflation factor?)

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