QUESTION 2: Mr. MoneyMiser is planning to retire in 30 years. His current net worth is -$100,000 (it is a loan at an interest rate of 6% per annum) His goal is to have $2,000,000 at retirement. a. Determine the constant amount he should be saving each year for 30 years, so that his loan is paid off and he will have $2,000,000 for his retirement. He will earn 6% per year rate of return on his savings. b. MoneyMiser will save the same annual amount as calculated in part a above, but suppose he can earn 8% per annum on his savings. Loan and all the accumulated interest at the rate of 6% will be paid off 5 years from today. After paying off the loan how much MoneyMiser should be saving each year to have $2,000,000 at his retirement. Any difference between his savings in part a above, and required savings per year in part b to achieve his goal of $2,000, 000 at retirement will be invested in a risky portfolio expected to earn 10% per year. What will be the value of the risky portfolio when he retires.
QUESTION 2: Mr. MoneyMiser is planning to retire in 30 years. His current net worth is -$100,000 (it is a loan at an interest rate of 6% per annum) His goal is to have $2,000,000 at retirement. a. Determine the constant amount he should be saving each year for 30 years, so that his loan is paid off and he will have $2,000,000 for his retirement. He will earn 6% per year rate of return on his savings. b. MoneyMiser will save the same annual amount as calculated in part a above, but suppose he can earn 8% per annum on his savings. Loan and all the accumulated interest at the rate of 6% will be paid off 5 years from today. After paying off the loan how much MoneyMiser should be saving each year to have $2,000,000 at his retirement. Any difference between his savings in part a above, and required savings per year in part b to achieve his goal of $2,000, 000 at retirement will be invested in a risky portfolio expected to earn 10% per year. What will be the value of the risky portfolio when he retires.
Chapter5: The Time Value Of Money
Section: Chapter Questions
Problem 39P
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QUESTION 2:
Mr. MoneyMiser is planning to retire in 30 years. His current net worth is -$100,000 (it is a loan
at an interest rate of 6% per annum) His goal is to have $2,000,000 at retirement.
a. Determine the constant amount he should be saving each year for 30 years, so that his loan is
paid off and he will have $2,000,000 for his retirement. He will earn 6% per year rate of
return on his savings.
b. MoneyMiser will save the same annual amount as calculated in part a above, but suppose he
can earn 8% per annum on his savings. Loan and all the accumulated interest at the rate of
6% will be paid off 5 years from today. After paying off the loan how much MoneyMiser
should be saving each year to have $2,000,000 at his retirement. Any difference between his
savings in part a above, and required savings per year in part b to achieve his goal of $2,000,
000 at retirement will be invested in a risky portfolio expected to earn 10% per year. What
will be the value of the risky portfolio when he retires.
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