- Using what she learned from studying this book, Vanessa made a projection of what future value she would need to
retire comfortably and what rate of return she might reasonably project for her investments. She used the techniques of
this section to take the impact of infl ation into account, and determined how much she should be depositing into her
retirement accounts. True or false: If she makes all of her deposits as planned, she will defi nitely have the amount she
needs to retire comfortably. - In the summer of 2006, according to one method of calculating the infl ation rate, the infl ation rate was 4.8%.
My savings account was paying 2½%. What was the real rate of return for my savings account? - Which is a better investment result: to earn 20% when the infl ation rate is 24%, or to earn 2% when the infl ation
rate is 0%? - Linus’s company offers a defi ned benefi t pension. On a benefi ts summary statement he received from his company,
based on a reasonable projection of his earnings into the future, he could expect to receive an annual pension of
$43,560, assuming he does not leave his job until he retires 20 years from now.
Linus realizes, though, that with infl ation $43,560 is not as large a benefi t as it seems. If infl ation runs at 3.5% for the
next 20 years, what is $43,560 worth in today’s dollars?- Ambria and Todd fi gure that they will need the equivalent of $4,000 monthly income (in today’s dollars) to retire
comfortably. If they will retire in 18 years and infl ation runs at 3.7%, what is the actual monthly income they would
need upon retirement to meet this goal?
F. Additional Exercise- Glynnis received a statement from the U.S. Social Security Administration that indicated that, on the basis of her
current earnings, she could expect to receive a monthly Social Security benefi t of $2,558.56 when she reaches age 65
in 24 years. The statement also said that the value of this benefi t in today’s dollars is $1,187.50. What infl ation rate is
being assumed?
Copyright © 2008, The McGraw-Hill Companies, Inc.
Exercises 7.3 329