Megs pension plan is an annuity with a guaranteed return of

Meg\'s pension plan is an annuity with a guaranteed return of 4% per year (compound quarterly). She would like to retire with a person of $30,000 per quarter for 25 years. if she works 41 years before retiring, how money must she and her employer deposit each quarter? $

Solution

she need after retirement $30,000 per quarter for 25 years = 30000*4*25 = $3000000

Future Value of annuity = $3000000

Applying F.V formula for ordinary annuity :

r = 0.04/4 = 0.01 ; n = 41*4 = 164

F.V = P[(1+r)^n -1]/r

3000000 = P[ (1.01^164 -1]/0.01

P = 3000000/411.33 = $ 7293.41