Sauder School of Business COMM 371 Sep 2012
Jake Wetzel
Marked Problem Set 1
Solutions must be typed. The work has to be done in groups of 3 to 4 students. Please
submit the solution in person at the end of the class on October 11th.
1. You are trying to determine your standard of living after retirement. You make the
following assumptions. First, you will earn $200,000 for each of the next 35 years,
save 30% of that amount, and retire after 35 years. Second, savings are annual and the
first payment towards your savings is one year from today. Third, term structure will
be flat at 5% forever.
(a) [3 marks] Compute how much money you will have saved at the end of the 35th
year.
C=200,000×30%=$60,000
FV35=60,000x(1+5%)35+60,000x(1+5%)34+……+60,000x(1+5%)
=60,000x[(1+5%)35-1]/5%
=$5,419,218.441
(b) [3 marks] What is the amount you can consume during each of your retirement
