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December 13th, 2011, 08:49 PM  #1 
Joined: Dec 2011 Posts: 9 Thanks: 0  finance help
A wealthy relative has passed away and left an inheritance of $200,000 to you, which you will receive exactly three years from today. You plan to retire in 23 years, and you will invest this $200,000 wisely, beginning on the day you receive the funds, earning 7% per year until then. a) What is the present value today of this inheritance assuming interest rates are currently 5%? b) What will your retirement fund be worth on the day you retire? c) If your life expectancy is 86 years, and you are 40 years old today, what amount will you be able to draw out each year in your retirement? Assume an interest rate during retirement years of 5%, and ignore taxes and the payment is at the end of the year. 
December 13th, 2011, 09:08 PM  #2 
Global Moderator Joined: Jul 2010 From: St. Augustine, FL., U.S.A.'s oldest city Posts: 11,566 Thanks: 108 Math Focus: The calculus  Re: finance help
Please do not post your question multiple times in various subfora. Pick the most appropriate subforum for your topic and post it one time there. Two of the posts I deleted were in other folks' topics...which tends to derail a discussion and is seen as inconsiderate. This question is the type of problem you encounter in precalculus study, so this is the copy I left. Thanks for your understanding and cooperation. 
December 13th, 2011, 09:22 PM  #3 
Joined: Dec 2011 Posts: 9 Thanks: 0  Re: finance help
sorry i'm new here. can you answer my uestion?

December 13th, 2011, 11:02 PM  #4 
Joined: Apr 2011 From: USA Posts: 782 Thanks: 1  Re: finance help
Personally I think it oughta be in the math and economics but that's me. What have you attempted on this? There's numerous steps, about 3 different equations, one assumption, and a lot of explanation to go along with this. It would be nice to know what you do and do not understand, and kinda hone in on something. You didn't "ask a question." You posted a rather long problem. 
December 13th, 2011, 11:13 PM  #5  
Global Moderator Joined: Jul 2010 From: St. Augustine, FL., U.S.A.'s oldest city Posts: 11,566 Thanks: 108 Math Focus: The calculus  Re: finance help Quote:
 
December 13th, 2011, 11:21 PM  #6  
Joined: Apr 2011 From: USA Posts: 782 Thanks: 1  Re: finance help Quote:
 
December 13th, 2011, 11:44 PM  #7  
Math Team Joined: Oct 2011 From: Ottawa Ontario, Canada Posts: 3,089 Thanks: 36  Re: finance help Quote:
homework not done here. By the way, the other 2 parts are also quite simple. You were given no formulas?  
December 14th, 2011, 05:11 AM  #8 
Joined: Dec 2011 Posts: 9 Thanks: 0  Re: finance help
This is what I do know for part a (n= 20, i= 5%,) and the future value is 200,000. I just need to know if that's howI go about the problem 
December 14th, 2011, 01:23 PM  #9 
Global Moderator Joined: Nov 2006 From: UTC 5 Posts: 12,867 Thanks: 96  Re: finance help
For a) I'd say $200,000 * 1.05^3 = $172,767.52; that you expect to earn 7% has no bearing on NPV. b) is a simple calculation which you should be able to do on your own. For c) you should write out the equation and then solve it. (I hate the wording, by the way  that your life expectancy is 86 has no bearing on the problem. The real question is what your life expectancy would be at age 63, and we're apparently supposed to implicitly assume that those are the same.) 
December 14th, 2011, 02:10 PM  #10 
Joined: Dec 2011 Posts: 9 Thanks: 0  Re: finance help
for b is it n=20 or n=23?

December 14th, 2011, 02:17 PM  #11 
Global Moderator Joined: Nov 2006 From: UTC 5 Posts: 12,867 Thanks: 96  Re: finance help
n is the number of years the amount is invested... so what will that be in this case?

December 14th, 2011, 02:20 PM  #12 
Joined: Dec 2011 Posts: 9 Thanks: 0  Re: finance help
It would be 20 years

December 14th, 2011, 09:32 PM  #13 
Joined: Apr 2011 From: USA Posts: 782 Thanks: 1  Re: finance help
Yes, it's 20 years. Sometimes it helps to draw a little line with the years on it, and plot in where things are happening so you can see where it all is. That includes (c). I agree with CRG about that whole life expectancy thing. That was the assumption I was referring to that you have to make. What you really need is how many years you'll live after you retire.

December 14th, 2011, 09:38 PM  #14  
Joined: Apr 2011 From: USA Posts: 782 Thanks: 1  Re: finance help Quote:
 

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