PFIN 7:STUDENT EDITION-TEXT
7th Edition
ISBN: 9780357033616
Author: Billingsley
Publisher: CENGAGE L
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Chapter 2, Problem 8FPE
Inflation and interest rates. Jessica Adams is 21 years old and has just graduated from college. In considering the retirement investing options available at her new job, she is thinking about the long-term effects of inflation. Help her by answering the following related questions:
- a. Explain the effect of long-term inflation on meeting retirement financial planning goals.
- b. If long-term inflation is expected to average 4 percent per year and you expect a long-term investment return of 7 percent per year, what is Jessica’s long-term expected real
rate of return (adjusted for inflation)? Be sure to consider the important impact of compounding.
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Lillian Coleman is 21 years old and has just graduated from college. In considering the retirement investing options available at her new job, she is thinking about the long-term effects of inflation. Help her by answering the following related questions:
If long-term inflation is expected to average 4 percent per year and you expect a long-term investment return of 6 percent per year, what is Lillian's long-term expected real rate of return (adjusted for inflation)? Be sure to consider the important impact of compounding.
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You are considering a retirement savings. For this you will need to determine following information.
Average starting salary of you major. $73,000
Your annual retirement savings amount. 8% of annual income
Your age when you start working. 23 years old
Your age when you plan to retire. 58
Retirement account investment vehicle. This will determine the growth rate. ? idk what this is... When I retire I want to open a ice cream shop (this might help answer the question)
Create an excel table with your age column, annual contribution, annual account balance.
Re-do the calculation with monthly contribution and find your account balance at your retirement.
Submit excel table with all your information.
Use Excel to solve the following problem. Assume that you are 39 years old planning for your future retirement at age 65. You think that you will be comfortable living on the proceeds from a $1,000,000 401K Retirement Account.a. If your investments grow at an average rate of 6% annually how much must you invest monthly to achieve your projected retirement fund total by the time you retire in 26 years?b. Assuming that when you do retire, you will re-direct your $1,000,000 investment portfolio into less volatile and more secure mutual funds. You expect that, invested in these sources, your portfolio will securely earn 4.5% annually. Based on your assumptions and the normal life expectancy of an American male or female (I determined this to be 81 years old), without consuming any of your principal, how much money will you have on a monthly basis to support your life?(I have worked this problem out on my own, I just want to be sure I applied the formulas and concepts correctly.)
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