Stock returns and your retirement account: Suppose your retirement accounthas a balance today of $25,000 and you are 20 years old. If you are investedin a diversifed portfolio of stocks, you might hope that the historical returnof about 6% continues into the future. Consider how the balance in yourretirement account evolves as you age under the diferent assumptions below.(If you like, use a spreadsheet program to help you with this question.)(a) Compute the balance in your retirement account when you will be 25,30, 40, 50, and 65 years old assuming the average annual rate of return is6%. Assume there are no deposits or withdrawals in this account, so theoriginal balance just accumulates.(b) Do the same thing for rate of return of 5% and 7%. How sensitive is thecalculation to the rate of return?(c) Plot your retirement account balance for these three scenarios (6%, 5%,7%) on a standard scale.(d) Do the same thing with a ratio scale.
Stock returns and your retirement account: Suppose your retirement account
has a balance today of $25,000 and you are 20 years old. If you are invested
in a diversifed portfolio of stocks, you might hope that the historical return
of about 6% continues into the future. Consider how the balance in your
retirement account evolves as you age under the diferent assumptions below.
(If you like, use a spreadsheet program to help you with this question.)
(a) Compute the balance in your retirement account when you will be 25,
30, 40, 50, and 65 years old assuming the average annual
6%. Assume there are no deposits or withdrawals in this account, so the
original balance just accumulates.
(b) Do the same thing for rate of return of 5% and 7%. How sensitive is the
calculation to the rate of return?
(c) Plot your retirement account balance for these three scenarios (6%, 5%,
7%) on a standard scale.
(d) Do the same thing with a ratio scale.
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