What will your portfolio be worth in 10 years? In 20 years? When can you stop working? The Human Resources Department at Four Corners Corporation was asked to develop a financial planning model that would help employees address these questions. Tom Gifford was asked to lead this effort and decided to begin by developing a financial plan for himself. Tom is 40 years old, has a degree in business, and earns an annual salary of $85,000. Through contributions to his company's retirement program and the receipt of a small inheritance, Tom has accumulated a portfolio valued at $50,000. Tom plans to work 20 more years and hopes to accumulate a portfolio valued at $1,000,000. Can he do it?

Tom began with a few assumptions about his future salary, his new investment contributions, and his portfolio growth rate. He assumed a 5% annual salary growth rate and plans to make new investment contributions at 6% of his salary. After some research on historical stock market performance, Tom decided that a 10% annual portfolio growth rate was reasonable. Using these assumptions, Tom developed a Excel worksheet. In computing the portfolio earnings for a given year, Tom assumed that his new investment contribution would occur evenly throughout the year, and thus half of the new investment could be included in the computation of the portfolio earnings for the year.

Tom's plan was to use this worksheet as a template to develop financial plans for the company's employees. The data in the spreadsheet would be tailored for each employee, and rows would be added to the worksheet to reflect the employee's planning horizon. After completing his worksheet, Tom found that he could expect to have portfolio of $772,722 after 20 years. Tom then took his results to show his boss, Kate Krystkowiak.

Although Kate was pleased with Tom's progress, she voiced several criticism. One of the criticisms was the assumption of a constant annual salary growth rate. She noted that most employees experience some variation in the annual salary growth rate from year to year. In addition, she pointed out that the constant annual portfolio growth rate was unrealistic and that the actual growth rate would vary considerably from year to year. She further suggested that a simulation model for the portfolio projection might allow Tom to account for the random variability in the salary growth rate and the portfolio growth rate.

After some research, Tom and Kate decided to assume that the annual salary growth rate would vary from 0% to 5% and that a uniform probability distribution would provide a realistic approximation. Four Corner's accountants suggested that the annual portfolio growth rate could be approximated by a normal probability distribution with a mean is 10% and a standard deviation of 5%. With this information, Tom set off to redesign his spreadsheet so that it could be used by the company's employees for financial planning.

(So I have run this simulation but I cannot get my value to be $772,722. For part 1, how do you get the final value to be 772,722? Like what formula are you using because I am adding the beginning balance+new investment+earnings.)

Play the role of Tom Gifford and develop a simulation model for financial planning. Write a report for Tom's boss and, at a minimum, include the following:

1. Without considering the random variability, extend the current worksheet to 20 years. Confirm that by using the constant annual salary growth rate and the constant annual portfolio growth rate, Tom can expect to have a 20-year portfolio of $772,722. What would Tom's annual investment rate have to increase to in order for his portfolio to reach a 20-year, $1,000,000 goal? Hint: Use Goal Seek.