Stefani German, a 40-year-old woman, plans to retire at age 65, and she wants to accumulate $420,000 over the next 25 years to supplement the retirement programs provided by the federal government and her employer. She expects to earn an average annual return of about 6% by investing in a low-risk portfolio containing about 20% short-term securities, 30% common stock, and 50% bonds. Stefani currently has $32,620 that at an annual rate of return of 6% will grow to about $140,000 by her 65th birthday (the $140,000 figure is found using time value of money techniques, Chapter 4 Appendix.) Stefani consults a financial advisor to determine how much money she should save each year to meet her retirement savings objective. The advisor tells Stefani that if she saves about $18.23 each year, she will accumulate $1,000 by age 65. Saving 5 times that amount each year, $91.15, allows Stefani to accumulate roughly $5,000 by age 65. a. How much additional money does Stefani need to accumulate over time to reach her goal of $420,000? b. How much must Stefani save to accumulate the sum calculated in part a over the next 25 years? a. To reach her goal of $420,000, Stefani needs to accumulate $ (Round to the nearest dollar.)
Stefani German, a 40-year-old woman, plans to retire at age 65, and she wants to accumulate $420,000 over the next 25 years to supplement the retirement programs provided by the federal government and her employer. She expects to earn an average annual return of about 6% by investing in a low-risk portfolio containing about 20% short-term securities, 30% common stock, and 50% bonds. Stefani currently has $32,620 that at an annual rate of return of 6% will grow to about $140,000 by her 65th birthday (the $140,000 figure is found using time value of money techniques, Chapter 4 Appendix.) Stefani consults a financial advisor to determine how much money she should save each year to meet her retirement savings objective. The advisor tells Stefani that if she saves about $18.23 each year, she will accumulate $1,000 by age 65. Saving 5 times that amount each year, $91.15, allows Stefani to accumulate roughly $5,000 by age 65. a. How much additional money does Stefani need to accumulate over time to reach her goal of $420,000? b. How much must Stefani save to accumulate the sum calculated in part a over the next 25 years? a. To reach her goal of $420,000, Stefani needs to accumulate $ (Round to the nearest dollar.)
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
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Transcribed Image Text:Stefani German, a 40-year-old woman, plans to retire at age 65, and she wants to accumulate $420,000 over the next 25 years to supplement the retirement programs provided by the federal government
and her employer. She expects to earn an average annual return of about 6% by investing in a low-risk portfolio containing about 20% short-term securities, 30% common stock, and 50% bonds.
Stefani currently has $32,620 that at an annual rate of return of 6% will grow to about $140,000 by her 65th birthday (the $140,000 figure is found using time value of money techniques, Chapter
4 Appendix.) Stefani consults a financial advisor to determine how much money she should save each year to meet her retirement savings objective. The advisor tells Stefani that if she saves about
$18.23 each year, she will accumulate $1,000 by age 65. Saving 5 times that amount each year, $91.15, allows Stefani to accumulate roughly $5,000 by age 65.
a. How much additional money does Stefani need to accumulate over time to reach her goal of $420,000?
b. How much must Stefani save to accumulate the sum calculated in part a over the next 25 years?
a. To reach her goal of $420,000, Stefani needs to accumulate $
(Round to the nearest dollar.)
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