Cashflow question and TI BA plus

Guys, I have come across a few questions which have stumped me, especially with payment gaps and implications for accrued. e.g. Investor wants to withdraw $20k for 20 years following retirement in 15 years First of 15 annual payments to be made a year from today the account will pay 5% interest compounded quarterly. In addition the investors employer will contribute $200 at the end of every year as a profit sharing plan (15 payments). What ammount must the depositor invest each year to enable him to make the withdrawals in 15 years time.? (Answer = $9377) Now , I observed the 1/4rly compounding which I adjusted on p/y, I started by trying to find the PV of 20 payments of $20k …Is it right to assume the account is still paying the 5% 1/4rly compound on the lump sum as it pays down over the 20 year period? I appreciate the employer will pay at the end of the year and the effects, I just don’t have the understanding to get this into the Ti BA… Are there such questions as this in the exam?..I have spend considerably longer than 2 minutes (as you can imagine) doing this long hand, without getting it correct. Would greatly appreciate guidance as to payment gaps and future values on the TI…Thanks!

Are you sure the employer contributes 200 and not 2000?

  1. Assume the 5% qtrly interest holds for all periods (it’s the only reasonable assumtions). 2) Calculate the PV of the retirement payments AS OF one year before retirement (as PV of an ordinary annuity, if you assume that the first payment will be made one year after retirement; if first payment begins immediately, do it as PV of an annuity due) 3) Discount (2) to the present as a lump sum (PV of Lump Sum) 4) Calculate the PV of the company’s contributions (it’s the PV of an ordinary annuity) 5) Net (4) from (3) 6) Annuitize the resulting lump sum to the retirement date (15 years) as an annuity due.

busprof, could you show your calculations too please? or perhaps someone else? cheers.

chad17 Wrote: ------------------------------------------------------- > Are you sure the employer contributes 200 and not > 2000? Thanks for picking up on that, yes it should be $2000 at the end of every year…busprof,thanks for the response and assiatance…i will try to work through it now. With respect to problems, such as this are we likely to find these in the exam…maybe I am “less gifted” than the majority on here, but it takes me the 90 seconds to read through the question and highlight such things as semi/annual compounding etc…These questions take me more like 5-10 mins…I realise I need to apply myself, but there must be easier and less time consuming points to gain in the exam?

do it in three steps N=80, I/Y=1.25, PMT=20 --> CPT PV=1007.73 This is PV of what he would require for retirement at the end of 15 years. Convert the above to Time 0. FV=1007.73 N=60, I/Y=1.25 CPT PV PV=478.24 Get PV of 2K per year for 15 years (employer’s contrib). PMT=2 N=60 I/Y=1.25 PV = 84.07 So he needs to deposit 478.24 - 84.07 = 394.17 PV=394.17 N=60 I/Y=1.25 CPT PMT = 9.377 Ans (I have done away with the 000 in each calc).