Question
Allison and Leslie, who are twins, just received $25,000 each for their 20th birthday. They both have aspirations to become millionaires. Each plans to make
Allison and Leslie, who are twins, just received $25,000 each for their 20th 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 8% 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 14% per year in the fund's relatively short history.
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If the two womens 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: Leslie:
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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 calculations. Round your answer to the nearest cent.
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Is it rational or irrational for Allison to invest in the bond fund rather than in stocks?
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