Financial Projections in Today’s Dollars

Financial Projections in Today’s Dollars

Suppose that I want to have $700,000 in today’s dollars in my newly opened IRA when I retire in 36 years. Assume that my investments earn 9.3% and that inflation averages 3.5%

a. What is the real rate of return I am expecting on my investments.

b. How much should I deposit each year in order to reach this goal? Assume that I want the answer in

today’s dollars;

I intend to increase my contributions each year to keep pace with inflation.

Suppose that I want to have $700,000 in today’s dollars in my newly opened IRA when I retire in 36 years. Assume that my investments earn 9.3% and that inflation averages 3.5%.

a. What is the actual future value I need in order to achieve my goal?

b. How much should I deposit each year in order to reach this goal? Assume that I want to contribute the same amount of actual dollars each year; I do not intend to increase the contributions to keep pace with inflation.

Solution: