Solution to Assignment of FIN 622

Question No.1:

Mr. Anwar will retire at the age of 60. He expects to live 20 more years and to
Spend Rs. 55,000 a year during his retirement. How much money does he need to?
Save by age 60 to support this consumption plan? Assume an interest rate of 7
Percent.

Solution:

C= 55000
I = 7%=0.07
T = 20 Years
Formula for annuity:

= C (1/r-1/r (1+r) t]
Putting the values in formula:
= 55000(1/0.07-1/0.07 (1+0.07)20
= 55000(1/0.07-1/0.07 (3.86)
= 55000(1/0.07-1/0.2702
= 55000(1/0.07-3.70
= 55000(14.28-3.70)
= 55000(10.58)
= 581900