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Chapter 5, Solutions        Cornett, Adair, and Nofsinger

both earn a 7 percent return, how much should you expect to have when you retire in 30 years?

The future value can be calculated by adding the accumulated value of \$80,000 brought forward with interest 30 years to a 30 year annuity of \$5,000 per year, both using the 7% interest assumption.  Use equations 5-1 and 5-2 and add the results:

4&5-2 Future Value Consider that you are 45 years old and have just changed to a new job. You have \$150,000 in the retirement plan from your former employer.  You can roll that money into the retirement plan of the new employer.  You will also contribute \$8,000 each year into your new employer’s plan.  If the rolled-over money and the new contributions both earn an 8 percent return, how much should you expect to have when you retire in 20 years?

The future value can be calculated by adding the accumulated value of \$150,000 brought forward with interest 20 years to a 20 year annuity of \$8,000 per year, both using the 8% interest assumption.  Use equations 5-1 and 5-2 and add the results:

4&5-3  Future Value and Number of Annuity Payments Your client has been given a trust fund valued at \$1 million.  He cannot access the money until he turns 65 years old, which is in 25 years.  At that time, he can withdrawal \$25,000 per month.  If the trust fund is invested at a 5.5 percent rate, how many months will it last your client once he starts to withdraw the money?

Using equation 5-1, \$1 million will accumulate for 25 more years at 5.5% interest for a future value:

Now, rewrite equation 5-9 in terms of N:

4&5-4 Future Value and Number of Annuity Payments Your client has been given a trust fund valued at \$1.5 million.  She cannot access the money until she turns 65 years old, which is in 15 years.  At that time, she can withdraw \$20,000 per month.  If the trust fund is invested at a 5 percent rate, how many months will it last your client once she starts to withdraw the money?

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