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A woman wishes to retire when she is 60 years old. She has 35 years to build up her...

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saj-94 | (Level 1) Salutatorian

Posted August 15, 2013 at 5:58 AM via web

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A woman wishes to retire when she is 60 years old. She has 35 years to build up her savings and would like to have R1 000 000 saved as a lump sum by the time she retires. She decides to invest in an ordinary annuity, with interest given at 6.5% per annum, compounded monthly.

b) The value of money will depreciate over the next 35 years and affect the real value of her savings. Experts estimate that money will devalue at 4% per annum. Determine the real value of R1 000 000 in 35 years time, if this depreciation rate is applied.

part a) of this question;

http://www.enotes.com/homework-help/woman-wishes-retire-when-she-60-years-old-she-has-447795

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embizze | High School Teacher | (Level 1) Educator Emeritus

Posted August 15, 2013 at 4:56 PM (Answer #2)

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We want to convert the future value of R1000000 into its present value.

Use `PV=FV(1+i)^(-n)` where PV is the present value, FV is the future value, i is the annual interest rate (inflation rate) and n is the number of years.

`PV=1000000(1+.04)^(-35)~~253415.47`

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Converting to constant dollars, a future value of R1000000 is worth approximately R253415.47 in today's money.

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