Amanda has 30 years to save for her retirement. At the beginning of each year, she puts
Question:
Amanda has 30 years to save for her retirement. At the beginning of each year, she puts $5000 into her retirement account. At any point in time, all of Amanda’s retirement funds are tied up in the stock market.
Suppose the annual return on stocks follows a normal distribution with mean 12% and standard deviation 25%. What is the probability that at the end of 30 years, Amanda will have reached her goal of having
$1,000,000 for retirement? Assume that if Amanda reaches her goal before 30 years, she will stop investing. (Hint: Each year you should keep track of Amanda’s beginning cash position—for year 1, this is
$5000—and Amanda’s ending cash position. Of course, Amanda’s ending cash position for a given year is a function of her beginning cash position and the return on stocks for that year. To estimate the probability that Amanda will meet her goal, use an IF statement that returns 1 if she meets her goal and 0 otherwise.)
Skill-Extending Problems
Step by Step Answer:
Practical Management Science, Revised
ISBN: 9781118373439
3rd Edition
Authors: Wayne L Winston, S. Christian Albright