Celebrity Retirement - Finance Question?
Brad Pitt and Angelina Jolie are thinking about retiring. They will both retire in 20 years. Brad will live for 23 years after he retires and Angelina will live for 33 years after she retires. While they are both alive during retirement, they want to have a total steady income of $5,000 per month. This income will be paid at the end of the month. After Brad dies, Angelina wishes to receive an income of $3,000 per month. This income will be paid at the end of the month as well. In addition, Brad wishes to give their son, Shiloh, $100,000 when he dies. When Angelina dies, she wishes to leave $25,000 per year, in perpetuity to Ryerson University, in a scholarship fund. The scholarship fund will earn 5% annual percentage rate (APR) in perpetuity. Brad and Angelina will earn 6% APR, compounded semi-annually on their investment during retirement. Currently Brad and Angelina have $10,000 in the bank. The $10,000 earns 10.4% APR compounded quarterly for the next 20 years. a) Draw a detailed timeline and label all components to illustrate Brad and Angelina’s retirement plan. b) Calculate the EAR and the EPR of (i) 6% APR compounded semi-annually and (ii) 10.4% APR compounded quarterly. c) Will Brad and Angelina have enough money to fund their retirement, the gift for Shiloh, and the Ryerson scholarship fund? If not, how much must they set aside each month for the next 20 years? Assume these deposits earn 8% APR compounded semi-annually and the payments are made at the beginning of each month. d) If both Brad and Angelina were to die together 20 years after they retired, would they have enough money to fund their entire retirement? If not, calculate the new monthly payments they would need to set aside for the next 20 years. Assume these deposits earn 8% APR compounded semi-annually and the payments are made at the beginning of each month. e) Draw a new timeline and label each component to illustrate Brad and Angelina’s retirement plan based on the scenario in part d).
Public Comments
- well at least you made the questions somewhat interesting. It's an annuity question. Read the textbook about how to calculate annuities. You need to draw a point for each one of the cashflows, discounting them to point 0, and figure out what the amount at point 0 is, b/c that has to be your initial investment. BTW, I thing Brad and Angelina will probably want 5.5mm per period.
