Assume an investor begins saving for retirement at age 25 and retires at age 65. Each year, shecontributes $10,000 to her retirement account. To keep things simple, assume that there are 40annual contributions that occur on the investors 25-th, 26-th, ...,64-th birthdays, and that thefinal retirement wealth is determined on the investors 65-th birthday.Savings are invested asfollows: 50% in a broad stock market index and 50% in T-Bills.Your task is to compute the accumulated real retirement savings at age 65 for different returnrealizations. As explained below, you will generate returns using a Monte Carlo simulation. OnCanvas, you can find an Excel file containing historical net returns on the S&P 500 and 3-monthT-bills, as well as the consumer price index (CPI) from 1926 to 2017. The return on the CPIserves as a measure of inflation.

STEPS:1. Compute the annual real return on the 50/50 portfolio for each year in the sample. Theresulting set of 92 portfolio returns represents the empirical distribution. These are thereturns investors historically realized when investing in a 50/50 mix of stocks and T-billsover this time period.

2. We will use the historical data to assess what may happen in the future via a Monte Carlosimulation. To generate a possible path of future returns, draw 40 times with replacementfrom the empirical distribution.2Assuming the 92 historical returns are located in thecell range H12:H103, a random draw can be generated with=INDEX(H12:H103,RANDBETWEEN(1,92))The set of 40 draws you generated can be viewed as one scenario of what may happen inthe next 40 years.

3. Using the simulated return path, compute the investors wealth at age 65.