Financial Calculations And Projections ✓ Solved
Financial Calculations and Projections
Calculate the value of a Certificate of Deposit (CD), the value of reinvested CD, annuities due, investment account, IRA, amount accumulated at early retirement, present value (PV) at ages 45 and 55, future value (FV) of annuity due at age 55, total value of investment at age 55, and the amount to withdraw each January 1 upon early retirement.
Introduction
Financial planning is crucial for ensuring a secure retirement and understanding the value of investments over time. This report outlines the calculations related to a Certificate of Deposit (CD), reinvested CDs, and annuities, providing insights into their future values. The calculations also encompass the present values at ages 45 and 55, illustrating the growth of investments based on different interest rates and time frames.
Value of Certificate of Deposit (CD)
The initial value of the Certificate of Deposit (CD) is $10,068.
Value of Reinvested CD
The value of the reinvested CD, calculated using a future value formula, is $45,227.68. This computation assumes a reinvestment at a rate of 6.75% over the past 22 years, yielding a significant growth in value.
Value of Annuities Due
The future value of annuities due is calculated as $82,843.29. This takes into account a fixed payment of $1,500 each year, compounded at an interest rate of 6.75% over 23 years (from the age of 22 to 45).
Investment Account and IRA Values
The current investment account has a value of $128,070, which is derived from the combined total of the different funds and investments held. Additionally, the value of the IRA currently stands at $114,353, also subject to the growth rate applied to these accounts.
Amount Accumulated at Early Retirement
The total amount accumulated by early retirement is $242,424, indicating a robust growth trajectory made possible through diligent saving and investing practices.
Present Values at Ages 45 and 55
The present value (PV) of investments at age 45 is computed at $242,424.32, while at age 55, the present value escalates to $523,375.92. These values highlight the importance of longevity in investment for maximizing returns through compounding interest.
Future Value of Annuity Due at Age 55
The future value of the annuity due at age 55 calculates to $23,468.23. This figure represents the total growth potential from consistent contributions made over time, at the defined interest rate.
Total Value of Investment at Age 55
By age 55, the total value of the investment consists of the combined totals of the various accounts, culminating in a total of $546,844.15. This figure reflects positive outcomes from strategic investment practices and compound growth.
Annual Withdrawal Amount at Early Retirement
The calculated amount to withdraw each January 1 upon early retirement is $75,459.17. This withdrawal strategy allows for a sustainable income stream while ensuring minimal depletion of investment funds.
Conclusion
Effective financial planning processes, including understanding the mechanics of CDs, annuities, investment accounts, and the strategies for withdrawals, play a critical role in achieving financial security for retirement. Implementing these calculations can assist individuals in making informed decisions to optimize their retirement funds.
References
- Brigham, E. F., & Ehrhardt, M. C. (2020). Financial Management: Theory & Practice. Cengage Learning.
- Brealey, R. A., Myers, S. C., & Allen, F. (2017). Principles of Corporate Finance. McGraw-Hill Education.
- Fabozzi, F. J., & Gupta, F. J. (2018). Fixed Income Analysis. Wiley.
- Gordon, M. J. (2012). The Investment, Financing, and Valuation of the Corporation. Irwin.
- Hirt, G. A., & Block, S. B. (2017). Fundamentals of Investment. McGraw Hill.
- Pagach, D., &Pirinsky, C. (2021). Financial Markets and Institutions. Nelson Education.
- Sharpe, W. F., Alexander, J. C., & Bailey, J. V. (2014). Investments. Pearson.
- Vernimmen, P., Quiry, P., Dallocchio, M., & Salvi, A. (2014). Corporate Finance: Theory and Practice. Wiley.
- Warren, C. S., & Reeve, J. M. (2020). Financial Accounting. Cengage Learning.
- White, G. I., Sondhi, A. J., & Fried, D. (2003). The Analysis and Use of Financial Statements. Wiley.