John Would Like to Establish a Retirement Plan That Returns

question 42

Essay

John would like to establish a retirement plan that returns an amount of $100,000 in 20 years. Build a spreadsheet model to calculate the amount John must contribute at the end of each year towards his retirement fund, assuming an annual interest rate of 6%.
Use the Excel function
=PMT(rate, nper, pv, fv, type)
The arguments of this function are
rate = the interest rate for the loan
nper = the total number of payments
pv = present value (the amount borrowed which is 0 in this case)
fv = future value (in the formula, indicate this value as negative as the future value command assumes a stream of payments not deposits)
type = payment type (0 = end of period, 1 = beginning of the period)
Also, construct a one-way table with interest rate as the column variable and the amount contributed at the end of each year as the output. Vary the interest rate from 4% to 7% in increments of 0.5%.

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Definitions:

Probability .50

A statistical measure indicating that an event has an equal chance of occurring or not occurring, often represented as a 50% chance.

Nash Equilibrium

A concept in game theory where each player's strategy is optimal, given the strategies of all other players, leading to a situation where no player has an incentive to unilaterally change their strategy.

Michigan Football

Refers to the college football program representing the University of Michigan, known for its long history and success in the sport.

Probability .70

A statistical measure indicating that an event has a 70% chance of occurring.