Diane knows that she will ultimately face retirement. Assume that Diane will experience two periods in her life, one in which she works and earns income, and one in which she is retired and earns no income. Diane can earn $250,000 during her work period and nothing in her retirement period. She must both save and consume in her work period with an interest rate of 10 per cent on savings.
-Refer to the information provided. Assume that Diane decides to consume $150 000 in the work period. How much will she consume in her retirement period?

Question

Quizplus · Accepted Answer

Diane will have $250,000 - $150,000 = $100,000 in savings at the end of her work period. With an interest rate of 10%, her savings will grow to $100,000 * (1 + 0.1)^20 = $258,024.69 by the end of her retirement period. Therefore, she will be able to consume $258,024.69 in her retirement period.

Diane Knows That She Will Ultimately Face Retirement