Question
Bobby just turned 18, and he considers his role model to be Warren Buffett (who is exactly 72 years older than Bobby). Warren Buffett has
Bobby just turned 18, and he considers his role model to be Warren Buffett (who is exactly 72 years older than Bobby). Warren Buffett has a net worth today of $81 billion. Bobby wants to be an investor just like Buffett, and wants to be just as wealthy in exactly 72 years (in REAL terms) as Warren Buffett is now.
Bobby has a small part-time job mowing lawns, but still wants to start investing now. He plans to work for the next 52 years and contribute a portion of his salary each week to his investment account. During this time period, Bobby expects to earn a nominal 16.5% APR, compounded semi-annually, on his investments.
However, when he stops working in 52 years, hell transition to managing his investment account full-time. He will not withdraw any of the money (hell live from other sources of money). And Bobby believes that, with his full-time attention on his retirement funds, he can earn a nominal 24.0% APR, compounded semi-annually, on his investments for the remaining 20 years of his goal. Inflation is expected to be 1.4% APR, compounded quarterly.
Question: Bobby plans to start saving a little money, starting next week, and then grow it each week by 17.5% APR, compounded quarterly. How much would he need to contribute (in nominal terms) to the account next week in order to achieve his dream?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started