- 18 Frodo Is Currently 25 Years Old And Expects To Retire At 70 His Current Salary Is 5 000 Per Month And He Hopes To 1 (111.18 KiB) Viewed 44 times
18. Frodo is currently 25 years old and expects to retire at 70. His current salary is $5,000 per month, and he hopes to save and deposit 10% of his monthly income into a target-date fund. His first deposit will be made next year. He will make constant deposits till he turns 35, during which time he expects a big promotion to come his way, boosting his income and hence, the monthly deposits in his retirement account. In the month after he turns 35, he will increase the deposit to his retirement account, and the deposits will stay constant at this higher level. His last deposit will be made when he retires at 70. One month after he retires, he plans to make periodic monthly withdrawals of $ 16,000. His withdrawals will grow at a constant rate of 4% per year. He expects to live till he turns 95, when he will make his final withdrawal. Further, the target date fund has a varying interest rate. During the savings period, since Frodo will be young, he can take on more risk, and the target date will invest aggressively into equities giving him a return of 10% per year. However, once he retires, the target date fund will select a more conservative strategy of investing in bonds with lower risk and a lower return of 2%. Knowing this information, what is the amount of money that Frodo must deposit from one month after he turns 35 to up to his 70th birthday to fund his future withdrawals fully? a. $652.44 b. $754.64 c. $887.16 d. $856.83 e. None of the above