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Old 12-14-2011   #1
moralvirus
 
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Default Hard math problem

A wealthy relative has passed away and left an inheritance of $200,000 to you, which you will receive exactly three years from today. You plan to retire in 23 years, and you will invest this $200,000 wisely, beginning on the day you receive the funds, earning 7% per year until then.
a) What is the present value today of this inheritance assuming interest rates are currently 5%?
b) What will your retirement fund be worth on the day you retire?
c) If your life expectancy is 86 years, and you are 40 years old today, what amount will you be able to draw out each year in your retirement? Assume an interest rate during retirement years of 5%, and ignore taxes and the payment is at the end of the year.
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Old 02-01-2012   #2
noreply
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Originally Posted by moralvirus View Post
A wealthy relative has passed away and left an inheritance of $200,000 to you, which you will receive exactly three years from today. You plan to retire in 23 years, and you will invest this $200,000 wisely, beginning on the day you receive the funds, earning 7% per year until then.
I can only answer b)...

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Originally Posted by moralvirus View Post
b) What will your retirement fund be worth on the day you retire?
To answer this, it depends on whether it is simple or compound.
If it is simple:
200,000 x 0.07 x (23 - 3) = $280000 extra obtained from investment. Therefore:
280000+200000 = $480,000 retirement fund.
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