Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Allison and Leslie, who are twins, just received $20,000 each for their 24th birthday. They both have aspirations to become millionaires. Each plans to make

image text in transcribed
Allison and Leslie, who are twins, just received $20,000 each for their 24th birthday. They both have aspirations to become millionaires. Each plans to make a $5,000 annual contribution to 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 7% per year in the past. Leslie invested in the New Issue Bio-Tech Fund, which invests in small, newly issued bio-tech stocks and whose investors have earned an average of 18% per year in the fund's relatively short history. 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 millionaire? Do not round intermediate calculations. Round your answers to two decimal places. Allison: 60.38 years Leslie: 42.54 years b. How large would Allison's annual contributions have to be for her to become a millionaire at the same age as Leslie, assuming their expected returns are realized? Do not round intermediate cericulations, Round your answer to the nearest 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 couldn't say whether Allison is rational or irrational, just that she seems to have less tolerance for risk than Leslie does. II. High expected returns in the market are almost always accompanied by less risk. We couldn't say whether Allison is rational or irrational, just that she seems to have more tolerance for risk than Leslie does. III. High expected returns in the market are almost always accompanied by a lot of risk. We couldn't say whether Allison is rational or irrational, just that she seems to have more tolerance for risk than Leslie does. IV. High expected returns in the market are almost 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 always accompanied by a lot of risk. We couldn't say whether Allison is rational or irrational, just that she seems to have about the same tolerance for risk than Leslie does. -Select

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

Venture Capital And The Finance Of Innovation

Authors: Andrew Metrick, Ayako Yasuda

3rd Edition

1119490111, 978-1119490111

More Books

Students also viewed these Finance questions