Problem 4-1 You are trying to decide how much to save for retirement. Assume you plan to save $4000 per year with the first investment made one year from now. You think you can earn 5% per year on your investments and you plan to retire in 43 years, immediately after making you last $4000 investment. a. How much will you have in your retirement account on the day you retire? b. If, instead of investing $4000 per year, you wanted to make one lump-sum investment today for your retirement that will result in the same etirement saving, how much would that lump sum need to be? c. If you hope to live for 20 years in retirement, how much can you withdraw every year in retirement (starting one year after retirement) so that you will just exhaust your savings with the 20th withdrawal (assume your savings will continue to earn 5% in retirement)? d. If, instead, you decide to withdraw $300,000 per year in retirement (again with the first withdrawal one year after retiring), how many years will it take until you exhaust t your savings? (Use trial-and-error, a financial calculator: solve for "N", or Excel: function NPER) e. Assuming the most you can afford to save is $1000 per year, but you want to retire with $1 million in your investment account, how high of a return do you need to earn on your investments? (Use trial-and-error, a financial calculator: solve for the interest rate, or Excel: function RATE) Inputs: Annual Savings Investment Return Retirement in Retirement Horizon a. Account Value h. Todays Lump Sum Retirement Annual C. Withdrawal d. Years of retirement e. Rate required
Problem 4-1 You are trying to decide how much to save for retirement. Assume you plan to save $4000 per year with the first investment made one year from now. You think you can earn 5% per year on your investments and you plan to retire in 43 years, immediately after making you last $4000 investment. a. How much will you have in your retirement account on the day you retire? b. If, instead of investing $4000 per year, you wanted to make one lump-sum investment today for your retirement that will result in the same etirement saving, how much would that lump sum need to be? c. If you hope to live for 20 years in retirement, how much can you withdraw every year in retirement (starting one year after retirement) so that you will just exhaust your savings with the 20th withdrawal (assume your savings will continue to earn 5% in retirement)? d. If, instead, you decide to withdraw $300,000 per year in retirement (again with the first withdrawal one year after retiring), how many years will it take until you exhaust t your savings? (Use trial-and-error, a financial calculator: solve for "N", or Excel: function NPER) e. Assuming the most you can afford to save is $1000 per year, but you want to retire with $1 million in your investment account, how high of a return do you need to earn on your investments? (Use trial-and-error, a financial calculator: solve for the interest rate, or Excel: function RATE) Inputs: Annual Savings Investment Return Retirement in Retirement Horizon a. Account Value h. Todays Lump Sum Retirement Annual C. Withdrawal d. Years of retirement e. Rate required
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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Open recovered workbooks? Your recent changes were saved. Do you want to con
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✔ fx You are trying to decide how much to save for retiremen
A
a.
b.
e.
Problem 4-1
B
You are trying to decide how much to save for retirement. Assume you plan to
save $4000 per year with the first investment made one year from now. You think
you can earn 5% per year on your investments and you plan to retire in 43 years,
immediately after making you last $4000 investment.
Annual Savings
Investment Return
Retirement in
Retirement Horizon
How much will you have in your retirement account on the day you retire?
If, instead of investing $4000 per year, you wanted to make one lump-sum
investment today for your retirement that will result in the same etirement saving,
how much would that lump sum need to be?
c. If you hope to live for 20 years in retirement, how much can you withdraw every
year in retirement (starting one year after retirement) so that you will just exhaust
your savings with the 20th withdrawal (assume your savings will continue to earn
5% in retirement)?
d. If, instead, you decide to withdraw $300,000 per year in retirement (again with
the first withdrawal one year after retiring), how many years will it take until you
exhaust your savings? (Use trial-and-error, a financial calculator: solve for "N", or
Excel: function NPER)
a. Account Value
h. Todays Lump Sum
C.
Retirement Annual
Withdrawal
d. Years of retirement
e. Rate required
Ready
D
C
Assuming the most you can afford to save is $1000 per year, but you want to
retire with $1 million in your investment account, how high of a return do you
need to earn on your investments? (Use trial-and-error, a financial calculator: solve
for the interest rate, or Excel: function RATE)
Inputs:
Problem 4-1
21
D
Accessibility: Good to go
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4-6
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