Assume that you are 30 years old and expect to retire when you reach 65. If you were to retire today, you would like a fixed (pretax) income of 60,000 per year (in addition to the social security) for a period of 15 years ( your approximate life expectancy at age 65). However you realized that price inflation will erode the purchasing power of the dollar over the next 35 years and you want to adjust your desired retirement income at age 65 to reflect the decline in the purchasing power of the dollar. In addition to the fixed annual income, payable at the beginning of each year starting at age 65, you want to have assets (that is, security investments) of 1,000,000 either for your own needs or to donate to heirs, when you reach 80 years old.

Empirical studies have estimated the average compound rate price inflation and returns on stock and bonds over the past 70 years to be approximately:

	Compound rate
Inflation	3%
Common stock	11
Corporate bonds	6
Equity weighted portfolio	8.5
50% common stocks, 50% bonds

Assume that these rates will remain the same over the next 50 years and that you can earn these rates of return, after transactions costs, by investing in stock and/or bond index mutual funds. Also, assume that contributions to your retirement fund are made at the end of each year. Finally, assume that income taxes on the returns from any retirement (example IRA, or 401 k plans) can be deferred until you withdraw the funds beginning at 65.

1.Determine the amount you must accumulate by age 65 to meet your retirement goal, assuming that you invest in: Equally weighted portfolio (50 percent common stocks, 50% bonds)

2. Determin the annual investment in an equally weighted portfolio (50% common stocks, 50 percent bonds) required to accumulate the funds determined in question 1, assuming that the first payment is made at age

a.30

b.40

c.50

3. (apply to question #2) What conclusion can be drawn from the answers to question 2?

PLEASE USED CALCULATIONS IF NEED IT