You realize that the plan in Problem 41 has a flaw. Because your income will increase over your

QUESTION

You realize that the plan in Problem 41 has a flaw. Because your income will increase over your lifetime, it would be more realistic to save less now and more later. Instead of putting the same amount aside each year, you decide to let the amount that you set aside grow by 3% per year. Under this plan, how much will you put into the account today? (Recall that you are planning to make the first contribution to the account today.)
AssumingFV = 1million , n=25 years Growth rate=3% Present Value of annuity=C(1.03)/(0.05-0.03)* [1-(1.03/1.05)^25] + C——-1 Present value of 1 million in 25 years =1,000,000/(1.05^25) = 295,302.77——2 put 1 equal to

2 C(1.03)/(0.05-0.03)* [1-(1.03/1.05)^25] + C = 295,302.77 C=295,302.77 /(1.03)/(0.05-0.03)* [1-(1.03/1.05)^25] + 1 = 295,302.77/37.32 = $7,912.72

ANSWER:

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