How much will your portfolio be worth in 10 years? In 20 years? When you stop working? The Human Resource department at EcoCarnifex Corporation was asked to develop a financial planning model that would help employees address these questions. Frank Joseph was asked to lead this effort and decided to begin by developing a financial plan for himself. Frank has a degree in business and at the age of 25, is making $34,000 per year. After 2 years of contribution to the company retirement plan and receiving a small inheritance, Frank has accumulated a portfolio valued at $14,500. Frank plans to work for 30 more years and hopes to accumulate a portfolio valued at $1,000,000. Can he do it?

Assumptions:

1. 5% salary growth is reasonable.

2. He plans to contribute 4% of his salary.

3. 10% annual portfolio growth seems reasonable.

4. Contributions occur monthly throughout the year.

Develop an Excel worksheet and calculate the value at the end of 5 years. Frank projected he could save around $691,500 after 30 more years of service. What would Franks alternatives be if he wants to make $1,000,000? Frank showed this to his boss who made the following observations.

1. Salary growth should not be constant. Should vary from 0 to 10 percent with a uniform probability distribution.

2. Annual portfolio growth rate should be approximated by a normal probability distribution with a mean of 10% and a standard deviation of 5%

Develop an Excel worksheet with this new information.

Frank is willing to work 5 more years. What is the result of that decision?

Use @Risk to perform these simulations.