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Steve is a 25-year-old software engineer whose primary long-term financial goal is to save enough money to comfortably retire. Therefore, he wants to begin an
Steve is a 25-year-old software engineer whose primary long-term financial goal is to save enough money to comfortably retire. Therefore, he wants to begin an investment plan that will make this a reality within 40 years. Hee currently has $10,000 saved for this purpose, and he wants to determine the appropriate monthly savings amount that will allow him to reach his goal. He estimates that he can earn an average annual return of 10%, and he would like to save a total of $600,000 Table of Future Value Factors Table of Future Value Annuity Factors 5% 8% 10% Year 2% 10% 1.000 6.105 10 10.950 12.578 14.487 15.937 5% 1.000 5.2045.526 8% 1.000 5.867 1 1.020 1.050 1.080 1.100 5 1.104 1.276 1.469 1.611 10 1.219 1.629 2.159 2.594 40 2.208 7.040 21.724 45.258 1.000 5 40 60.401 120.797 259.052 442.580 If he invests the $10,000 today, the terminal value of this initial investment in 40 years (earning an average 10% return) will be savings plan to obtain the full $600,000. Still assuming an average return on investment of 10%, the additional yearly investment required to reach Steve's targeted financial goal within 40 years is . This means that he must accumulate the remaining through his annual Suppose instead that Steve had no capital saved and thus needed to accumulate the entire $600,000 in the next 40 years. In this case, his annual contribution would have to be When Steve starts with an initial investment of $10,000, the total amount that he ends up contributing to accumulate $600,000 is equal to the initial investment plus the additional yearly payments, for a total of . When he starts with no initial capital contribution, the amount he ends up contributing is equal to the sum of all annual contributions you calculated in the no-initial-capital scenario, for a total of Once Steve has determined the annual amount he needs to save, the next step toward achieving his goal is coming up with an investment plan True or False: The appropriate investment plan depends on the investment objective. False rue
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