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Question 1- Yes or No? Practice: Chapter 11 Investment Planning Back to Assignment Attempts 7. Ch11 Critical Thinking Case 1 1 Chapter 11 Critical Thinking

Question 1- Yes or No?

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Practice: Chapter 11 Investment Planning Back to Assignment Attempts 7. Ch11 Critical Thinking Case 1 1 Chapter 11 Critical Thinking Case 1 The Jensens Struggle with Two Investment Goals Keep the Highest / 4 eBook Like many married couples, Morgan and Thomas Jensen are trying their best to save for two important investment objectives: (1) an education fund to put their two children through college; and (2) a retirement nest egg for themselves. They want to set aside $90,000 per child by the time each one starts college. Given that their children are now 10 and 12 years old, Morgan and Thomas have 6 years remaining for one child and 8 for the other. As far as their retirement plans are concerned, the Jensens both hope to retire in 20 years, when they reach age 65. Both Morgan and Thomas work, and together, they currently earn about $90,000 a year. The Jensens started a college fund some years ago by investing $5,000 a year in bank CDs. That fund is now worth $65,000 (assume that the fund is split in half for each child). They also have $49,000 that they received from an inheritance invested in several mutual funds and another $25,000 in a tax-sheltered retirement account. Morgan and Thomas believe that they'll be able to continue putting away $6,000 a year for the next 20 years. In fact, Morgan thinks they'll be able to put away even more, particularly after the children are out of school. The Jensens are fairly conservative investors and feel they can probably earn about 5 percent on their money. (Ignore taxes for the purpose of this exercise.) 1. Use Worksheet 11.1 to determine whether the Jensens have enough money right now to meet their children's educational needs. That is, will the $65,000 they've accumulated far be enough to put their children through school, given they can invest their money at 5 percent? Remember, they want to have $90,000 set aside for each child by the time each one starts college. $ -Select- 2. Regarding their retirement nest egg, assume that no additions are made to either the $49,000 they now have in mutual funds or to the $25,000 in the retirement account. How much would these investments can earn 5 percent? Round your answer to the nearest cent. $ 3. Now, if the Jensens can invest $6,000 a year for the next 20 years and apply all of that to their retirement nest egg, how much would they be able to accumulate given their 5 percent rate of return? Round your answer to the nearest cent. worth in 20 years, given that they 4. How do you think the Jensens are doing with regard to meeting their twin investment objectives? Explain. The input in the box below will not be graded, but may be reviewed and considered by your instructor. Financial goal: 1. Targeted Financial Goal (see Note 1), Desired Future Value 2. Projected Average Return on Investments A. Finding a Lump-Sum Investment to Fund Targeted Financial Goal: 3. Future Value of a Single Cash Flow Note 1: based on (FV) given an average return of investment as present value (PV) B. Making a Series of Investments over Time: 4. Amount of Initial Investment, if any (see Note 2) 5. Future Value of Initial Investment based on N = solve for future value (FV) 6. Balance to Come from Savings Plan line 1-line 5 7. Future Value Annuity Amount based on N= , I/Y= (FVA); solve for annuity amount (PMT) Note 2: DETERMINING AMOUNT OF INVESTMENT CAPITAL NEEDED years until desired financial goal stated in line 1 %; solve for lump-sum , I/Y= %, and PV; %, and future value of annuity The "targeted financial goal" is the amount of money you want to accumulate by some target date in the future. $ $ $ $ $ If you're starting from scratch with no initial investment-enter zero on line 4, skip line 5, and then use the total targeted financial goal (from line 1) as the amount to be funded from a savings plan; now proceed with the rest of the worksheet. % Practice: Chapter 11 Investment Planning Back to Assignment Attempts 7. Ch11 Critical Thinking Case 1 1 Chapter 11 Critical Thinking Case 1 The Jensens Struggle with Two Investment Goals Keep the Highest / 4 eBook Like many married couples, Morgan and Thomas Jensen are trying their best to save for two important investment objectives: (1) an education fund to put their two children through college; and (2) a retirement nest egg for themselves. They want to set aside $90,000 per child by the time each one starts college. Given that their children are now 10 and 12 years old, Morgan and Thomas have 6 years remaining for one child and 8 for the other. As far as their retirement plans are concerned, the Jensens both hope to retire in 20 years, when they reach age 65. Both Morgan and Thomas work, and together, they currently earn about $90,000 a year. The Jensens started a college fund some years ago by investing $5,000 a year in bank CDs. That fund is now worth $65,000 (assume that the fund is split in half for each child). They also have $49,000 that they received from an inheritance invested in several mutual funds and another $25,000 in a tax-sheltered retirement account. Morgan and Thomas believe that they'll be able to continue putting away $6,000 a year for the next 20 years. In fact, Morgan thinks they'll be able to put away even more, particularly after the children are out of school. The Jensens are fairly conservative investors and feel they can probably earn about 5 percent on their money. (Ignore taxes for the purpose of this exercise.) 1. Use Worksheet 11.1 to determine whether the Jensens have enough money right now to meet their children's educational needs. That is, will the $65,000 they've accumulated far be enough to put their children through school, given they can invest their money at 5 percent? Remember, they want to have $90,000 set aside for each child by the time each one starts college. $ -Select- 2. Regarding their retirement nest egg, assume that no additions are made to either the $49,000 they now have in mutual funds or to the $25,000 in the retirement account. How much would these investments can earn 5 percent? Round your answer to the nearest cent. $ 3. Now, if the Jensens can invest $6,000 a year for the next 20 years and apply all of that to their retirement nest egg, how much would they be able to accumulate given their 5 percent rate of return? Round your answer to the nearest cent. worth in 20 years, given that they 4. How do you think the Jensens are doing with regard to meeting their twin investment objectives? Explain. The input in the box below will not be graded, but may be reviewed and considered by your instructor. Financial goal: 1. Targeted Financial Goal (see Note 1), Desired Future Value 2. Projected Average Return on Investments A. Finding a Lump-Sum Investment to Fund Targeted Financial Goal: 3. Future Value of a Single Cash Flow Note 1: based on (FV) given an average return of investment as present value (PV) B. Making a Series of Investments over Time: 4. Amount of Initial Investment, if any (see Note 2) 5. Future Value of Initial Investment based on N = solve for future value (FV) 6. Balance to Come from Savings Plan line 1-line 5 7. Future Value Annuity Amount based on N= , I/Y= (FVA); solve for annuity amount (PMT) Note 2: DETERMINING AMOUNT OF INVESTMENT CAPITAL NEEDED years until desired financial goal stated in line 1 %; solve for lump-sum , I/Y= %, and PV; %, and future value of annuity The "targeted financial goal" is the amount of money you want to accumulate by some target date in the future. $ $ $ $ $ If you're starting from scratch with no initial investment-enter zero on line 4, skip line 5, and then use the total targeted financial goal (from line 1) as the amount to be funded from a savings plan; now proceed with the rest of the worksheet. %

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