Mary Fin401

Mary has now approached the point in her career many look forward to; retirement. She has come to me to address many concerns regarding her financial stability and provide a resolution. Her concerns are with how much money she will have after her investments and interest has been compounded. Retirement can be very rewarding and quite frightening if a person has not secured financial stability properly in the years to come. In this report I will go over Mary’s current financial investments and their amounts in total.

A. For the last 19 years you’ve invested 500.00 at an interest rate of 5% per year. You will make one more deposit of 500.00 one year from today’s date. The 5% interest rate gave you an additional 25.00 per year for every 500.00 invested (500*0.05% =25). There are 12 months in a year giving you an investment period of 240 months. We would then multiply the 525.00 earned a year by the 240 months. The results are as follows:

500(1.05^20-1) (1.05-1)

16532.98

B. The university wants to reward you with 75,000 for the next 20 years following your retirement. I understand you would prefer one lump sum at an interest rate of 7%. If you choose this option you payout will be as follows:

$75000 x 20 = 1,500,000

Interest is calculated at 7% for 20 years (240 months)

Amount = p [1+ (r/100)] ^20

1,500,000 (1+.07) ^20

1,500,000 (1.07) ^20

Offer the 7% interest alone you will make 105,000 the first year. Good idea to take the lump sum of money.

C. I understand that the university would like you to stay in your position for the 3 years to train your replacement. It’s good you know that the present value of your bonus will change. If you deferred your annuity the amounts will be as follows:

PV = fv / (1+r) ^ t = 3,074,661.92 / (1+0.07) ^ 20 = $794,551.07

(75,000*10.5940143 = 794,551.07)

Payment deferred for 3 years

Discount factored in for 3 Yrs. @ 7%= 0.816298

Present Value (PV) of her deferred annuity = 794,551.07*0.816298= 648,590.44...