Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Alisan and teslie, who are twins, just recelved $50,000 each for their 21 th birthday. They both have aspirations to become millionaires. Each plans to

image text in transcribed
Alisan and teslie, who are twins, just recelved $50,000 each for their 21 th birthday. They both have aspirations to become millionaires. Each plans to make a $5,000 annual contribution ta her "early retirement fund" on her birthday, beginning a year from today. Allison opened an account with the Safety First Bond Fund, a mutual fund that invests in high-quality bonds whose investors have earned 8% per year in the past. Leslie invested in the New. Issue Bio-Tech Fund, which invests in small, newy issued bio-tech stocks and whose investors have earned an average of 17% per year in the fund's relatively short histery. a. If the two women's funds earn the same returns in the future as in the past, how old will each be when she becomes a milionaire? Do not round intormediate caiculations. Round your answers to two decimal places. b. How large would Amiston's annual contributions have to be for her to become a millionaire at the same age as Leslie, assuming their expected returns are realizeo? Do not round intermediate calculations. Round your answer to the nearesk cent: c. Is it rational or irrational for Allison to invest in the bond fund rather than in stocks? 1. High expected returns in the market are almost always accompanied by a lot of risk. We couldnt cay whether Alison is rational or irrational, Just that she seems to have less tolerance for risk than Lestle does If. High expected returns in the market are almost always accompenied by less risk. We coulant say whether Allison is rational or irrational, just that she seems to have more tolerance for risk than Leslie does. IIt. High expected returns in the market are almost always accompanied by a lot of risk. We couldn't say whether Alison is rational or irrational, just that she seems to have more tolerance for risk than Lesie does. IV. High expected returns in the market are aimest always accompanied by less risk: We couldn't say whether Allison is rational or irrational, Just that she seems to have less tolerance for risk than Leslie does. V. High expected returns in the market are almost aleays accompanied by a lot of risk. We couldnt say whether Alison is rational or irrational, fust that she seems. to have about the same tolerance for risk than Lesle does

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

More Books

Students also viewed these Finance questions