An individual (with log-utility) wants to maximize her happiness level over her adolescence and adult periods. At the age 18 the individual inherits one hundred thousand dollars and must decide how much to consume now (when she is young, period t) and how much to save for her adulthood (period t +1) to maximize the sum of utility over different life stages. The bank will pay interest rate of 5% of every dollar she deposits. The individual discounts future utilities at B = 0.8. What is the optimal consumption in the adolescent period? 55555.56 55561.55 55558.55 55564.56

An individual (with log-utility) wants to maximize her happiness level over her adolescence and adult periods. At the age 18 the individual inherits one hundred thousand dollars and must decide how much to consume now (when she is young, period t) and how much to save for her adulthood (period t +1) to maximize the sum of utility over different life stages. The bank will pay interest rate of 5% of every dollar she deposits. The individual discounts future utilities at B = 0.8. What is the optimal consumption in the adolescent period? 55555.56 55561.55 55558.55 55564.56

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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You have discussed your retirement plans with your significant other and plan to move to a state with a lower cost of living upon retirement. You plan on living off $110,000 annually. You understand that your retirement account will likely yield a 5% return. Using the 4% Rule, how much money do you need in your retirement account upon retirement?
A couple wants to begin saving money for their daughter's education. $16,000 will be needed on the child’s 18th birthday, $18,000 on the 19th birthday, $20,000 on the 20th birthday, and $22,000 on the 21st birthday. Assume 5% interest with annual compounding. The couple is considering two methods of accumulating the money. a. How much money would have to be deposited into the account on the child's first birthday to accumulate enough money to cover the education expenses? (Note: A child’s “first birthday” is celebrated 1 year after the child is born.) b. What uniform annual amount would the couple have to deposit each year on the child’s first through seventeenth birthdays to accumulate enough money to cover the education expenses?
You have discussed your retirement plans with your significant other and plan to move to a state with a lower cost of living upon retirement. You plan on living off $110,000 annually. You understand that your retirement account will likely yield a 5% return. Using the 4% Rule, how much money do you need in your retirement account upon retirement?(round to the nearest dollar){DO NOT INCLUDE COMMAS OR $}
You want to set up a college savings plan for your daughter. She is currently 10 years old and will go to college at age 18. You assume that when she starts college, she will need at least $100,000 in the bank. How much do you need to save each year in order to have the necessary funds if the current rate of interest is 7%? Assume that end-of-year deposits are made.
This is a classic retirement problem. A friend is celebrating her birthday and wants to start saving for her anticipated retirement. She has the following years to retirement and retire- ment spending goals: Years until retirement: Amount to withdraw each year: Years to withdraw in retirement: Interest rate: 30 $90,000 20 8% Because your friend is planning ahead, the first withdrawal will not take place until one year after she retires. She wants to make equal annual deposits into her account for her retirement fund. a. If she starts making these deposits in one year and makes her last deposit on the day she retires, what amount must she deposit annually to be able to make the desired withdrawals at retirement?
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On the basis of how long she has until retirement and her comfort with investment risk, Chelsea has decided that she wants to allocate the money in her retirement account as follows: 75% to equities, 20% to fixed income, and 5% to cash. If Chelsea assumes that each asset class earns the low end of the historical average rates of return provided below, what overall rate of return would she expect to earn over the long term? Equities: 8%-12% Fixed Income: 4% - 7% . Cash: 2% - 5% . O 6.90% O 5.60% O 10.65% O 7.75% 4.67%
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A man wants to set up a 529 college savings account for his granddaughter. How much would he need to deposit each year into the account in order to have $30,000 saved up for when she goes to college in 17 years, assuming the account earns a 4% return. Annual deposit: $
Your grandparents are asking you for advice on when they should start collecting social security payments. If they wait until age 66, they will collect $2000 per month; but if they start collecting at age 62, they will collect $1500 per month. Assume they live to be 85, and simplify by assuming annual payments. (a) When do the higher payments catch up in total dollars received with the lower payment that starts earlier? (b) If their interest rate is 6%, which plan has a higher PW?

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