XYZ Ltd intends to accumulate funds by contributing to an annual accumulation fund to provide for the retirement benefits for CEO. These funds will be deposited into an accumulation account in equal installments, at the end of each year. The CEO will retire at the conclusion of his contract which expires at the end of five years from today. On retirement, the CEO is entitled to receive a lump sum of $120,000 on the day of the retirement plus end-of-year payments of $ 30,000 for each of the next ten years. XYZ Ltd will invest the accumulation of savings in fixed deposit account that earns the interest of 8% per annum.
How large a sum must XYZ accumulate by the end of year five to provide the retirement benefits for
CEO?|||Work it in 2 steps.
First, compute PV of 10 yrs of $30,000 payout, then add 120,000
then compute PMTS needed at 8% to reach first answer after 5 years.
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