Part II. Case Study Julie has just completed the rigorous process of becoming a
ID: 2671595 • Letter: P
Question
Part II. Case StudyJulie has just completed the rigorous process of becoming a Certified Financial Planner (CFP). She is looking forward to working with individuals on saving for retirement. She would like to show her clients the value of an annuity program as one of the best options for investing current earnings in a tax-deferred account.
3. 3. Another client, Wynona, decides that she will invest $5,000 per year in a 5% annuity for the first ten years, then $6,000 for the next ten years, and then $4,000 per year for the last ten years, how much will she accumulate? [Hint: Treat each ten-year period as as separate annuity and compute the Future Value. After the ten years, assume that the value will continue to grow at compound interest for the remaining years of the 30 years. Use tables from Unit 6 to compute compound interest from Book: from Pearson Prentice Hall Business Math 8th Edition Cheryl Cleaves, Margie Hobbs
Answer:
Explanation / Answer
. If a client puts the equivalent of $55 per month, or $660 per year, into an ordinary annuity, how much money would accumulate in 20 years at 3% compounded annually? Assumption Annually $660 FV of annuity = PMT * [((1 + i)^n - 1) / i] where PMT = $660 n = 20 i = 3% FV = 17,734.45 Assumption: Monthly $55 FV of annuity = PMT * [((1 + i)^n - 1) / i] where PMT = $55 n = 240 i = 3%/12 FV = 18,056.61 2. Jackie, a 25 year old client, want to retire by age 65 with $2,000,000. How much would she have to invest annually, assuming a 6% rate of return? FV of annuity = PMT * [((1 + i)^n - 1) / i] where FV = 2,000,000 n = 40 i = 6% PMT = 12923.07 3. Another client, Wynona, decides that she will invest $5,000 per year in a 6% annuity for the first ten years, then $6,000 for the next ten years, and then $4,000 per year for the last ten years, how much will she accumulate? Key point to note: Once you get the future value for the first part, it will become the present value in the next part and so on till you find the final value. We will use the same formula as above: FV for first 10 years = 65,903.97 FV after 20 years = 197,107.01 FV after the 30 years = 405,711.80 HOpe this helps.