Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Problem 5-30 Reaching a financial goal Erika and Kitty, who are twins, just received $10,000 each for their 25th birthdays. They both have aspirations to

image text in transcribed

Problem 5-30 Reaching a financial goal Erika and Kitty, who are twins, just received $10,000 each for their 25th birthdays. They both have aspirations to become millionaires. Each plans to make a $5,000 annual contribution to her "early retirement fund" on her birthday, beginning a year from today. Erika opened an account with the Safety First Bond Fund, a mutual fund that invests in high-quality bonds whose investors have earned 8% per year in the past. Kitty invested in the New Issue Bio-Tech Fund, which invests in small newly issued bio-tech stocks and whose investors have earned an average of 15% per year in the fund's relatively short history. a. If Erika's fund eams the same returns in the future as in the past, how old will she be when she becomes a millionaire? Round your answer to two decimal places b. If Kitty's fund earns the same returns in the future as in the past, how old will she be when she becomes a millionaire? Round your answer to two decimal places c. How large would Erika's annual contributions have to be for her to become a millionaire at the same age as Ksing their expected returns are realized? Round your answer to the nearest cent. years years d. Is it rational or irrational for Erika to invest in the bond fund rather than in stocks? I. High expected returns in the market are almost always accompanied by a lot of risk. We couldn't say whether Erika is rational or irrational, just that she seems to have less tolerance for risk than Kitty does II. High expected returns in the market are almost always accompanied by less risk. We couldn't say whether Erika is rational or irrational, just that she seems to have more tolerance for risk than Kitty III. High expected returns in the market are almost always accompanied by a lot of risk. We couldn't say whether Erika is rational or irrational, just that she seems to have more tolerance for risk than IV. High expected returns in the market are almost always accompanied by less risk. We couldn't say whether Erika is rational or irrational, just that she seems to have less tolerance for risk than Kitty High expected returns in the market are ai nost aways accompanied by a lot of risk we couldn't say whether Erika s rati na or rrati na ust that she see sto have about the arme erance r does. Kitty does does. risk than Kitty does -Select

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Information Systems Assurance

Authors: David C Chan

2nd Edition

150081458X, 9781500814588

More Books

Students also viewed these Finance questions