You are planning to save for retirement over the next 30 years. To save for retirement, you
Question:
You are planning to save for retirement over the next 30 years. To save for retirement, you will invest $800 per month in a stock account in real dollars and $400 per month in a bond account in real dollars. The effective annual return of the stock account is expected to be 11 percent, and the bond account will earn 7 percent. When you retire, you will combine your money into an account with an effective return of 9 percent. The returns are stated in nominal terms. The inflation rate over this period is expected to be 4 percent. How much can you withdraw each month from your account in real terms assuming a 25-year withdrawal period? What is the nominal dollar amount of your last withdrawal?
Step by Step Answer:
Fundamentals of Corporate Finance
ISBN: 978-1260153590
12th edition
Authors: Stephen M. Ross, Randolph W Westerfield, Robert R. Dockson, Bradford D Jordan