uan and Alex have 30 years to retirement. They are taking a personal finance course and have calculated their projected retirement income and vestment needs. Based on their calculations and taking into account their Social Security and pension incomes, they have a projected shortfall of 6,000.00 per year. se the following tables to answer the questions about future value interest factors. Interest Factors-Future Value Interest Factors-Future Value of an Annuity
uan and Alex have 30 years to retirement. They are taking a personal finance course and have calculated their projected retirement income and vestment needs. Based on their calculations and taking into account their Social Security and pension incomes, they have a projected shortfall of 6,000.00 per year. se the following tables to answer the questions about future value interest factors. Interest Factors-Future Value Interest Factors-Future Value of an Annuity
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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Pls correct solution with steps.
Transcribed Image Text:Yuan and Alex have 30 years to retirement. They are taking a personal finance course and have calculated their projected retirement income and
investment needs. Based on their calculations and taking into account their Social Security and pension incomes, they have a projected shortfall of
$6,000.00 per year.
Use the following tables to answer the questions about future value interest factors.
Interest Factors-Future Value Interest Factors-Future Value of an Annuity
Periods 3.00% 5.00% 6.00% 8.00% 9.00%
1.810
2.653
3.210
4.661
5.600
2.090
3.386 4.290
6.848
8.620
2.420
4.322
5.740
10.062
13.260
2.810
5.516
7.690
14.785 20.410
3.260
7.040
10.280 21.724 31.410
20
25
30
35
40
The impact of the inflation factor
Continuing their worksheet, they consult a friend, economics professor Dr. Wu, who believes that they can expect the average annual inflation rate to
be 5%, possibly 6% tops.
Complete the following table by calculating inflation-adjusted annual shortfall for Yuan and Alex at 5%. Then recalculate the shortfall based on the
top rate provided by Dr. Wu.
Interest rate Inflation-adjusted annual shortfall
(Percent)
5
6
=
(Dollars)
Funding the shortfall
In addition to determining a realistic inflation rate, Yuan and Alex talked to their financial advisor to understand rates of return now and after they
reach retirement. First, their advisor projects that in 30 years, they can realistically earn 5% on their nest egg. Second, he recommends an
investment vehicle that is earning 6% annually.
Interest rate
(Percent)
5
Complete the following table using the inflation-adjusted annual shortfall at 5% as previously calculated.
6
Description
Amount of retirement fund required
Annual savings required to fund nest egg
f
Amount of retirement funds required
(Dollars)
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