Q1: If you invested $200 today and expected consistent 10.93% annual returns (consistent with the 20-year average
Question:
Q1: If you invested $200 today and expected consistent 10.93% annual returns (consistent with the 20-year average for the S&P Index from 2002-2021, including dividends), how much will it be worth when you retire 30 years from yesterday (hint: 30 years after the initial one-time investment)?
Q2: Now, you're thinking about taxes when you withdraw that money. Assuming the value you just calculated of what that $200 you invested today with expected 10.93% returns will be in 30 years, how much will it be if you withdraw all of that money at an ordinary tax rate of 22%?
Q3: Now, you decide you're going to save $100/year every year for 30 years until you retire. You begin investing your $100 on the first day of the year. Assuming 10.93% annual returns, how much will you have at retirement in 30 years?
Q4: What if you make that same investment from Q3, but now you begin investing $100 on the last day of each year?
Q5: Of questions 3 and 4, which would you prefer (as in, which will yield the larger dollar value at retirement)?
Q6: Now, you say you want to retire with $500,000 in 30 years. You will make 30 annual contributions to do so. You make all contributions at the end of each year. Assuming 10.93% annual returns, how much does your annual payment need to be?
Q7: Now, you are concerned about very high inflation and investor fees so you think you need to retire with more. Now, you want to retire with $900,000 in 30 years. You will make 30 annual contributions to do so. You make all contributions at the end of each year. Assuming 10.93% annual returns, how much does your annual payment need to be?
Q8: Explain what the payment amounts for questions 6 and 7 mean to the investor and why they differ so much.
Financial Management Principles and Applications
ISBN: 978-0133423822
12th edition
Authors: Sheridan Titman, Arthur Keown, John Martin