On the basis of how long she has until retirement and her comfort with investment risk, Chelsea has decided that she wants toallocate the money in her retirement account as follows: 75% to equities, 20% to fixed income, and 5% to cash. If Chelseaassumes that each asset class earns the low end of the historical average rates of return provided below, what overall rate ofreturn 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%

Equity return=r1=8%Fixed income=r2=4%Cash=r3 =2%Equity weight=w1=75%Fixed income weight=w2=4%Cash…

ement and her comfort with investm allocate the money in her retirement account as follows: 75% to equities, 20% assumes that each asset class earns the low end of the historical average rates 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%

ement and her comfort with investm allocate the money in her retirement account as follows: 75% to equities, 20% assumes that each asset class earns the low end of the historical average rates 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%

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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An individual has determined utilizing the annuity method of capital needs analysis that he needs $1,045,656 at the beginning of his retirement to meet his retirement life expectancy goals. If this individual would like to be more conservative in his retirement planning forecast and maintain this capital balance throughout his retirement life expectancy of 32 years, given an expected earnings rate of 6%, and an inflation rate of 3% during the period, how much more would he need to have at the beginning of his retirement?
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