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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Consumption-Savings Plan Exercise
Assume Jacob is 30 years old and has 40 more years to work. Currently he doesn’t have any savings. His annual income in real terms is $60,000.
Assuming a life expectancy of 90 years, real interest rate throughout of 4% and desired retirement income of 70% of pre-retirement income, prepare a lifetime consumption-savings schedule for Jacob. Specifically calculate the following and then show excel schedule showing lifetime plan.
a) Annual savings and annual consumptions during the 40 working years, and accumulated wealth throughout life.
b) assume Jacob plans to take a vacation at the end of his age 80 and it costs additional $20,000, and he wants to leave $30,000 for charity at the end of his life. How would these affect annual savings and consumptions? Re-prepare the schedule.
c) How would the financial plan change if Jacob already has savings of $20,000 today?
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