Question on attachement BTN 13-6 **HITTING THE ROAD****BTN 13-6** You are to devise an investment strategy to enable you to accumulate $1,000,000 by age 65. Start by making some assumptions about your salary. Next, compute the percent of your salary that you will be able to save each year. If you will receive any lump-sum monies, include those amounts in your calculations. Historically, stocks have delivered average annual returns of around 10%. Given this history, you probably should not assume that you will earn above 10% on the money you invest. It is not necessary to specify exactly what types of assets you will buy for your investments; just assume a rate you expect to earn. Use the future value tables in **Appendix B** to calculate how your savings will grow. Experiment a bit with your figures to see how much less you have to save if you start at, for example, age 25 versus age 35 or 40. (For this assignment, do not include inflation in your calculations.) **Title: Future Value Computation Table****Mathematical Formula:**The table uses the formula for future value:\[ f = (1 + i)^n \]**Table Header:**- **Columns:** - Periods - Rate: Columns are divided into different interest rates ranging from 1% to 15%.**Table Content:**Each cell within the table contains the future value factor for a specific interest rate and number of periods. The value is computed using the formula $ f = (1 + i)^n $ where $ i $ is the interest rate in decimal form and $ n $ is the number of periods.**Description of Values:**- Each row represents a different period, starting from 0 up to 40.- Each column represents a different interest rate, starting from 1% up to 15%.**Detailed Example:**- To find the accumulated value of $3,000 at an 8% interest rate compounded quarterly over 20 years: - Locate the intersection of the 20th period and 2% rate (because quarterly compounding means $ \frac{8\%}{4} = 2\% $). - The factor from the table is 1.4859. - Multiply the principal by this factor: $3,000 × 1.4859 = $4,457.70.This table helps in determining the future value of a known present amount, illustrating how different interest rates and compounding periods affect the future value.

Let's consider a case study. Currently the bread winner of the family is Miss Seeta with an income of 3.5 lacs per month (pre-tax). Sirish has left the job and has got Rs.3 crores (post tax) from his stock options as consequence of the takeover of his The current expenses of the family is 1.5 lacs per month which does not include the school fees of their kids. They both need Rs.25000 per month to send to their parents to support They pay an EMI of Rs.1 lac per month for their home loan and the outstanding loan is Rs.50 lacs. Sirish now wants to start his own tech firm and does not want to continue the jobAssumptions In order to prepare an effective financial plan we have laid down some assumptions considering the above facts and figures and prevailing trends. Education Expenses– To ensure that children go to a reputed International school in Bangalore, hence we assumed their current schooling expenses to be Rs.20000 per month per Financial Freedom – As per the given working trends, people generally retire from their work by the age of 50 or 55 to live their life their work. Hence we have assumed that Seeta and Sirish would like to get financially free by 55 where working to earn a living would no more be a compulsion for Life Expectancy – If it is to be believed that the average age of a human being has raise to 72 in case of males and 77 in case of females, we have assumed the life expectancy of this couple as Inflation - The general inflation rate has been assumed to be 7% whereas the inflation in education has been assumed to be 10%. Higher Education - We have assumed the higher education age to be We have also considered that the money needed to fund their kid’s higher education would be needed in four intervals. (Tenure of undergrad course in U.S.) Bonus – It was mentioned that last year Seeta got a performance bonus of 12.5 lacs (per tax). We have assumed that she would continue to get the performance bonus on similar lines. Breadwinner – All the projections have been given considering that Seeta is the only breadwinner in the family and Sirish will not be contributing Parent’s Maintenance – We have also assumed that parent’s maintenance would stop 20 years from now.Cash Flow Analysis Based on the facts and assumptions mentioned in the previous section of the report we have laid down the cash flow of the family’s finances which shall form the basis for the decisions ahead. Particulars Amount (Monthly) Income Seeta’s Salary 350000 TDS 85417 Net Take Home Pay 264583 Expenses Household expenses 150000 School fees for kids 40000 Parent’s Maintainence 50000 Home Loan EMI 100000 Total Expenses 340000 Savings and Investments SIP in mutual Funds 100000 Total Savings 100000 Cash in Hand (175417) Note: While calculating the cash flow we have not considered the annual performance bonus and annual travel expenses and have assumed that the performance bonus will enable them to fund their vacations. Cashflow after prepayment of loan and discontinued SIP Particulars Amount (Monthly) Income Seeta’s Salary 350000 TDS 85417 Net Take Home Pay 264583 Expenses Household expenses 150000 School fees for kids 40000 Parent’s Maintainence 50000 Cash in Hand 24583 It seems that the family can save some money in case they prepay the outstanding loan of Rs.50 lacs. The savings gives some sigh of relief.Projected Cashflow for the next 10 years Keeping the above points in mind, we worked out a cashflow projection for next 10 years. However while laying down the same we assumed that the income would increase by 10% p.a. and expenses would increase at 7% p.a. The black bars in the graph depict the expenses and orange bars depict the income (net take-home pay) of the family over a period of 10 years.

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Finance

BTN 13-6 You are to devise an investment strategy to enable you to accumulate $1,000,000 by age 65. Start by making some assumptions about your salary. Next, compute the percent of your salary that you will be able to save each year. If you will receive any lump-sum monies, include those amounts in your calculations. Historically, stocks have delivered average annual returns of around 10%. Given this history, you probably should not assume that you will earn above 10% on the money you invest. It is not necessary to specify exactly what types of assets you will buy for your investments; just assume a rate you expect to earn. Use the future value tables in eAppendix B to calculate how your savings will grow. Experiment a bit with your figures to see how much less you have to save if you start at, for example, age 25 versus age 35 or 40. (For this assignment, do not include inflation in your calculations.)

BTN 13-6 You are to devise an investment strategy to enable you to accumulate $1,000,000 by age 65. Start by making some assumptions about your salary. Next, compute the percent of your salary that you will be able to save each year. If you will receive any lump-sum monies, include those amounts in your calculations. Historically, stocks have delivered average annual returns of around 10%. Given this history, you probably should not assume that you will earn above 10% on the money you invest. It is not necessary to specify exactly what types of assets you will buy for your investments; just assume a rate you expect to earn. Use the future value tables in eAppendix B to calculate how your savings will grow. Experiment a bit with your figures to see how much less you have to save if you start at, for example, age 25 versus age 35 or 40. (For this assignment, do not include inflation in your calculations.)

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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Inventory Accounting

Inventory accounting is that branch of accounting that helps in determining the specific value of assets at different stages of production and development.

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Question on attachement BTN 13-6

**HITTING THE ROAD**

**BTN 13-6** You are to devise an investment strategy to enable you to accumulate $1,000,000 by age 65. Start by making some assumptions about your salary. Next, compute the percent of your salary that you will be able to save each year. If you will receive any lump-sum monies, include those amounts in your calculations. Historically, stocks have delivered average annual returns of around 10%. Given this history, you probably should not assume that you will earn above 10% on the money you invest. It is not necessary to specify exactly what types of assets you will buy for your investments; just assume a rate you expect to earn. Use the future value tables in **Appendix B** to calculate how your savings will grow. Experiment a bit with your figures to see how much less you have to save if you start at, for example, age 25 versus age 35 or 40. (For this assignment, do not include inflation in your calculations.)

**Title: Future Value Computation Table**

**Mathematical Formula:**

The table uses the formula for future value:
\[ f = (1 + i)^n \]

**Table Header:**

- **Columns:**
- Periods
- Rate: Columns are divided into different interest rates ranging from 1% to 15%.

**Table Content:**

Each cell within the table contains the future value factor for a specific interest rate and number of periods. The value is computed using the formula $ f = (1 + i)^n $ where $ i $ is the interest rate in decimal form and $ n $ is the number of periods.

**Description of Values:**

- Each row represents a different period, starting from 0 up to 40.
- Each column represents a different interest rate, starting from 1% up to 15%.

**Detailed Example:**

- To find the accumulated value of $3,000 at an 8% interest rate compounded quarterly over 20 years:
- Locate the intersection of the 20th period and 2% rate (because quarterly compounding means $ \frac{8\%}{4} = 2\% $).
- The factor from the table is 1.4859.
- Multiply the principal by this factor: $3,000 × 1.4859 = $4,457.70.

This table helps in determining the future value of a known present amount, illustrating how different interest rates and compounding periods affect the future value.

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