Question
Ken just has had his 30th birthday and he has just bought an apartment for $3,500,000. To prepare for his retirement, Ken provided his wish
Ken just has had his 30th birthday and he has just bought an apartment for $3,500,000. To prepare for his retirement, Ken provided his wish list to his financial planner:
He plans to sponsor his son $5,000,000 to buy an apartment on his 60th birthday.
He wants to withdraw an additional $3,000,000 for a round-the-world trip right after his 65 th birthday in celebration of his retirement.
He wants to set up a trust fund for his university to award a scholarship of $150,000 annually (last forever) starting from his 70th birthday.(Deferred perpetuity?)
He wants to leave $50,000,000 to his wife on his 90th birthday.
He wants to retire on his 65th birthday and estimates that he needs $50,000 every month to support his living after retirement, with the first withdrawal one month after his retirement and the last withdrawal one month before his 90th birthday.
The financial planner recommends Mike to open an investment account that earns a return of 3.25% per quarter (EQR). Ken will be required to make quarterly deposits starting from one quarter after his 30th birthday until his 65th birthday (inclusive). He could then transfer all his money to a safe account that earns an effective monthly rate of 0.4867% (= EAR of 6%).
In addition, he plans to sell his apartment on his 60th birthday, and then deposit all the sale proceeds after the deduction of the sponsorship to his son to the investment account. He assumes that the market price of his apartment will grow at an average rate of 3% per year.
Required: If Ken makes a quarterly deposit of $9,000 to the investment account, does Ken have enough money to fulfill his retirement plan? By how much? Show your calculations. [Hints: Calculate how much Ken needs at retirement first]
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