Mike Polanski is 30 years of age and his salary next year will be $40,800. Mike
ID: 2636864 • Letter: M
Question
Mike Polanski is 30 years of age and his salary next year will be $40,800. Mike forecasts that his salary will increase at a steady rate of 9% per annum until his retirement at age 60.
If the discount rate is 12.0%, what is the PV of these future salary payments? (Do not round intermediate calculations.Round your answer to 2 decimal places.)
If Mike saves 9% of his salary each year and invests these savings at an interest rate of 12.0%, how much will he have saved by age 60? (Do not round intermediate calculations.Round your answer to 2 decimal places.)
If Mike plans to spend these savings in even amounts over the subsequent 20 years, how much can he spend each year? (Do not round intermediate calculations.Round your answer to 2 decimal places.)
a.
If the discount rate is 12.0%, what is the PV of these future salary payments? (Do not round intermediate calculations.Round your answer to 2 decimal places.)
Explanation / Answer
a. PV = 40,800/1.12 * [(1.09/1.12)30 - 1]/[ (1.09/1.12) - 1] = $757727.32
b. Savings = 757727.32*0.09*(1.12)30 = $2043130.62
c. Spending per year = $2043130.62* 0.12/ [1-(1/1.12)20] = $273531.84