An engineer who is now 65 years old began planning for retirement 40 years ago.
ID: 2617114 • Letter: A
Question
An engineer who is now 65 years old began planning for retirement 40 years ago. At that time, he thought that if he had $1 million when he retired, he would have more than enough money to live his remaining life in luxury. Assume the inflation rate over the 40-year time period averaged a constant 4.7% per year.
a) What is the CV purchasing power of his $1 million at age 65? (Hint: Use the day he started 40 years ago as the base year.)
The CV purchasing power is $ .
b) How many future dollars should he have accumulated over the 40 years to have a CV purchasing power equal to $1.9 million at his current age of 65?
To have a CV purchasing power of $1.9 million, he should have accumulated $ future dollars.
Explanation / Answer
a.
CV purchasing power 40 year before = $1,000,000 / (1 + 4.70%) ^ 40
= $1,000,000 / 6.2787
= $159,269.54
CV purchasing power 40 year before that is day he started 40 years ago as the base year was $159,269.54.
2.
CV purchasing power = $1.9 million
Future accumulated value = $1,900,000 × (1 + 4.70%) ^ 40
= $1,900,000 × 6.2787
= $11,929,462.27
Future accumulated value will be $11,929,462.27.