Terminal value of 401(k) plan for 3 options.

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Answer 1

Question

Chapter 18, Problem 11P

Summary Introduction

To determine: Terminal value of 401(k) plan for 3 options.

Expert Solution & Answer

Explanation of Solution

Note: Assume all the contributions and returns are remains constant over 20 years.

Option: 1

Terminal value=(Contribution and return×%Equity×(1+r)n−1r)+(Contribution and return×%Bonds×(1+r)n−1r)=16,500 (0.6){[(1+ 0.12)20−1]0.12} + 16,500(0.4){[(1+0.05)20−10.05]} = $931,554

Option: 2

Terminal value=(Contribution and return×%Equity×(1+r)n−1r)+(Contribution and return×%Bonds×(1+r)n−1r)+(Contribution×%Money market securities×(1+r)n−1r)=16,500 (0.5){[(1+ 0.12)20−1]0.12} + 16,500(0.45){[(1+0.05)20−10.05]} +16,500(0.05){[(1+0.03)20−10.03]} =$862,115

Option: 3

Terminal value=(Contribution and return×%Equity×(1+r)n−1r)+(Contribution and return×%Bonds×(1+r)n−1r)+(Contribution×%Money market securities×(1+r)n−1r)=16,500 (0.4){[(1+ 0.12)20−1]0.12} + 16,500(0.5){[(1+0.05)20−10.05]} +16,500(0.1){[(1+0.03)20−10.03]} =$792,676

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Answer 2

Question

Chapter 18, Problem 11P

Summary Introduction

To determine: Terminal value of 401(k) plan for 3 options.

Expert Solution & Answer

Explanation of Solution

Note: Assume all the contributions and returns are remains constant over 20 years.

Option: 1

Terminal value=(Contribution and return×%Equity×(1+r)n−1r)+(Contribution and return×%Bonds×(1+r)n−1r)=16,500 (0.6){[(1+ 0.12)20−1]0.12} + 16,500(0.4){[(1+0.05)20−10.05]} = $931,554

Option: 2

Terminal value=(Contribution and return×%Equity×(1+r)n−1r)+(Contribution and return×%Bonds×(1+r)n−1r)+(Contribution×%Money market securities×(1+r)n−1r)=16,500 (0.5){[(1+ 0.12)20−1]0.12} + 16,500(0.45){[(1+0.05)20−10.05]} +16,500(0.05){[(1+0.03)20−10.03]} =$862,115

Option: 3

Terminal value=(Contribution and return×%Equity×(1+r)n−1r)+(Contribution and return×%Bonds×(1+r)n−1r)+(Contribution×%Money market securities×(1+r)n−1r)=16,500 (0.4){[(1+ 0.12)20−1]0.12} + 16,500(0.5){[(1+0.05)20−10.05]} +16,500(0.1){[(1+0.03)20−10.03]} =$792,676

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Answer 3

Question

Chapter 18, Problem 11P

Summary Introduction

To determine: Terminal value of 401(k) plan for 3 options.

Expert Solution & Answer

Explanation of Solution

Note: Assume all the contributions and returns are remains constant over 20 years.

Option: 1

Terminal value=(Contribution and return×%Equity×(1+r)n−1r)+(Contribution and return×%Bonds×(1+r)n−1r)=16,500 (0.6){[(1+ 0.12)20−1]0.12} + 16,500(0.4){[(1+0.05)20−10.05]} = $931,554

Option: 2

Terminal value=(Contribution and return×%Equity×(1+r)n−1r)+(Contribution and return×%Bonds×(1+r)n−1r)+(Contribution×%Money market securities×(1+r)n−1r)=16,500 (0.5){[(1+ 0.12)20−1]0.12} + 16,500(0.45){[(1+0.05)20−10.05]} +16,500(0.05){[(1+0.03)20−10.03]} =$862,115

Option: 3

Terminal value=(Contribution and return×%Equity×(1+r)n−1r)+(Contribution and return×%Bonds×(1+r)n−1r)+(Contribution×%Money market securities×(1+r)n−1r)=16,500 (0.4){[(1+ 0.12)20−1]0.12} + 16,500(0.5){[(1+0.05)20−10.05]} +16,500(0.1){[(1+0.03)20−10.03]} =$792,676

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Answer 4

Question

Chapter 18, Problem 11P

Summary Introduction

To determine: Terminal value of 401(k) plan for 3 options.

Expert Solution & Answer

Explanation of Solution

Note: Assume all the contributions and returns are remains constant over 20 years.

Option: 1

Terminal value=(Contribution and return×%Equity×(1+r)n−1r)+(Contribution and return×%Bonds×(1+r)n−1r)=16,500 (0.6){[(1+ 0.12)20−1]0.12} + 16,500(0.4){[(1+0.05)20−10.05]} = $931,554

Option: 2

Terminal value=(Contribution and return×%Equity×(1+r)n−1r)+(Contribution and return×%Bonds×(1+r)n−1r)+(Contribution×%Money market securities×(1+r)n−1r)=16,500 (0.5){[(1+ 0.12)20−1]0.12} + 16,500(0.45){[(1+0.05)20−10.05]} +16,500(0.05){[(1+0.03)20−10.03]} =$862,115

Option: 3

Terminal value=(Contribution and return×%Equity×(1+r)n−1r)+(Contribution and return×%Bonds×(1+r)n−1r)+(Contribution×%Money market securities×(1+r)n−1r)=16,500 (0.4){[(1+ 0.12)20−1]0.12} + 16,500(0.5){[(1+0.05)20−10.05]} +16,500(0.1){[(1+0.03)20−10.03]} =$792,676

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Answer 5

Chapter 18, Problem 11P

Summary Introduction

To determine: Terminal value of 401(k) plan for 3 options.

Expert Solution & Answer

Explanation of Solution

Note: Assume all the contributions and returns are remains constant over 20 years.

Option: 1

Terminal value=(Contribution and return×%Equity×(1+r)n−1r)+(Contribution and return×%Bonds×(1+r)n−1r)=16,500 (0.6){[(1+ 0.12)20−1]0.12} + 16,500(0.4){[(1+0.05)20−10.05]} = $931,554

Option: 2

Terminal value=(Contribution and return×%Equity×(1+r)n−1r)+(Contribution and return×%Bonds×(1+r)n−1r)+(Contribution×%Money market securities×(1+r)n−1r)=16,500 (0.5){[(1+ 0.12)20−1]0.12} + 16,500(0.45){[(1+0.05)20−10.05]} +16,500(0.05){[(1+0.03)20−10.03]} =$862,115

Option: 3

Terminal value=(Contribution and return×%Equity×(1+r)n−1r)+(Contribution and return×%Bonds×(1+r)n−1r)+(Contribution×%Money market securities×(1+r)n−1r)=16,500 (0.4){[(1+ 0.12)20−1]0.12} + 16,500(0.5){[(1+0.05)20−10.05]} +16,500(0.1){[(1+0.03)20−10.03]} =$792,676

Answer 6

Chapter 18, Problem 11P

Summary Introduction

To determine: Terminal value of 401(k) plan for 3 options.

Expert Solution & Answer

Explanation of Solution

Note: Assume all the contributions and returns are remains constant over 20 years.

Option: 1

Terminal value=(Contribution and return×%Equity×(1+r)n−1r)+(Contribution and return×%Bonds×(1+r)n−1r)=16,500 (0.6){[(1+ 0.12)20−1]0.12} + 16,500(0.4){[(1+0.05)20−10.05]} = $931,554

Option: 2

Terminal value=(Contribution and return×%Equity×(1+r)n−1r)+(Contribution and return×%Bonds×(1+r)n−1r)+(Contribution×%Money market securities×(1+r)n−1r)=16,500 (0.5){[(1+ 0.12)20−1]0.12} + 16,500(0.45){[(1+0.05)20−10.05]} +16,500(0.05){[(1+0.03)20−10.03]} =$862,115

Option: 3

Terminal value=(Contribution and return×%Equity×(1+r)n−1r)+(Contribution and return×%Bonds×(1+r)n−1r)+(Contribution×%Money market securities×(1+r)n−1r)=16,500 (0.4){[(1+ 0.12)20−1]0.12} + 16,500(0.5){[(1+0.05)20−10.05]} +16,500(0.1){[(1+0.03)20−10.03]} =$792,676

Answer 7

Chapter 18, Problem 11P

Summary Introduction

To determine: Terminal value of 401(k) plan for 3 options.

Answer 8

Expert Solution & Answer

Explanation of Solution

Note: Assume all the contributions and returns are remains constant over 20 years.

Option: 1

Terminal value=(Contribution and return×%Equity×(1+r)n−1r)+(Contribution and return×%Bonds×(1+r)n−1r)=16,500 (0.6){[(1+ 0.12)20−1]0.12} + 16,500(0.4){[(1+0.05)20−10.05]} = $931,554

Option: 2

Terminal value=(Contribution and return×%Equity×(1+r)n−1r)+(Contribution and return×%Bonds×(1+r)n−1r)+(Contribution×%Money market securities×(1+r)n−1r)=16,500 (0.5){[(1+ 0.12)20−1]0.12} + 16,500(0.45){[(1+0.05)20−10.05]} +16,500(0.05){[(1+0.03)20−10.03]} =$862,115

Option: 3

Terminal value=(Contribution and return×%Equity×(1+r)n−1r)+(Contribution and return×%Bonds×(1+r)n−1r)+(Contribution×%Money market securities×(1+r)n−1r)=16,500 (0.4){[(1+ 0.12)20−1]0.12} + 16,500(0.5){[(1+0.05)20−10.05]} +16,500(0.1){[(1+0.03)20−10.03]} =$792,676