Question
1. Suppose you are planning for your retirement in 40 years time. You currently have $3,000 invested in a money market account and $5,000 in
1. Suppose you are planning for your retirement in 40 years time. You currently have $3,000 invested in a money market account and $5,000 in a share market fund. The money market account is estimated to earn an annual return of 5.5% whereas the share market fund is expected to earn an annual return of 12.5%. You plan to add $100 per month at the end of each month for the next 40 years to the money market account and $200 per month to the share market fund.
When you retire, you plan to withdraw an equal amount for each of the next 30 years at the end of each month and have nothing left at the end (of 30 years after retirement). Additionally, when you retire you will transfer all amount from these two funds into a saving account that earns 3.25% annual rate of interest per year.
i. Assuming the rates will remain as forecasted, how much can you withdraw each month when (and after) you retire? Show all steps, workings, and formula(s) clearly.
ii. Briefly explain the calculation steps and formulae used. Interpret and comment on your final answer. Does the final answer seem too large? Why or why not? You could use a simple example to illustrate your point. [Note: The discussion must be in your own words. Word limit: 100 words, excluding figures; answers beyond word limit will not be marked.]
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started