Bob wants to retire in 15 years, and he wants his savings to be enough to provide the same buying power as an amount of 500,000 could provide today. He believes that inflation will cause prices to increase by 6% each year over the next 15 years, and that his investments will earn an annual effective rate of return of 4%. He can save $500 at the end of every month the first year, and he plans to increase the deposits yearly by a constant percent. Assuming that his estimates of 6% annual inflation and 4% return rate are correct, what percent annual increase in his savings rate will help him reach his goal?

Bob wants to retire in 15 years, and he wants his savings to be enough to provide the same buying power as an amount of 500,000 could provide today. He believes that inflation will cause prices to increase by 6% each year over the next 15 years, and that his investments will earn an annual effective rate of return of 4%. He can save $500 at the end of every month the first year, and he plans to increase the deposits yearly by a constant percent. Assuming that his estimates of 6% annual inflation and 4% return rate are correct, what percent annual increase in his savings rate will help him reach his goal?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 35P

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