Lillian Coleman is 21 years old and has just graduated from college. In considering the retirement...

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:

Explain the effect of long-term inflation on meeting retirement financial planning goals.
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.

__________%

Expert Solution

Inflation in the long term will be going to minimise the rate of return which will be reducing the total return when invested in the long-term,so she should be trying to earn a higher rate of return which can easily beat the rate of inflation and which will be helpful in compounding her overall rate of return.

Real rate of return = (1+nominal rate of return/(1+inflation)-1

= (1.06/1.04)-1

= 1.9230% return per year.

Since the number of years for her investment is not when it is not apt for calculating the overall rate of return.

jeff jeffy answered 2 years ago

Your 21 year old client just graduated from college and started a job with monthly salary...

Your 21 year old client just graduated from college and started a job with monthly salary of $5,000 per month. He wants to retire when he is 60 years old and wants to start saving for retirement right away. We cannot be sure of how long we live after retirement, but the client wants to be extra careful and save for 30 years of after retirement life. Market expectation for average annual inflation for the future is 1.7% (Let’s assume...

Maria Turner has just graduated from college with a degree in accounting. She had planned to...

Maria Turner has just graduated from college with a degree in accounting. She had planned to enroll immediately in the master’s program at her university but has been offered a lucrative job at a well-known company. The job is exactly what Maria had hoped to find after obtaining her graduate degree. In anticipation of master’s program classes, Maria has already spent $450 to apply for the program. Tuition is $8,000 per year, and the program will take two years to...

You have just graduated from The a College and is making a budget presentation to a...

You have just graduated from The a College and is making a budget presentation to a group of students. In your presentation you are required to prepare the cash budget for Neann Ltd for the first quarter of 2011. The following information is to be used in the preparation of the budget. a) The directors have agreed at a special meeting to inject additional capital into the business of $60million dollars in February 2011. b) The business expects to receive...

Ms. Taylor is 21 years old and she just obtained her MBA degree. She is considering...

Ms. Taylor is 21 years old and she just obtained her MBA degree. She is considering the following two career options: (a)Start working now, earning an annual salary of $60,000 in each of next 44 years. (b)Enroll in a PhD program, in 4 years and subsequent work for 40 years, earning each year the salary of $120,000. Assume that her educational expenses at the end of each of 4 years will be $30,000. Also, assume that the relevant annual interest...

Jackson Daniels graduated from Lynchberg State College two years ago. Since graduating from college, he has...

Jackson Daniels graduated from Lynchberg State College two years ago. Since graduating from college, he has worked in the accounting department of Lynchberg Manufacturing. Daniels was recently asked to prepare a sales budget for the year 2016. He conducted a thorough analysis and came out with projected sales of 250,000 units of product. That represents a 25 percent increase over 2015. Daniels went to lunch with his best friend, Jonathan Walker, to celebrate the completion of his first solo job....

Your client is 21 years old. She wants to begin saving for retirement, with the first...

Your client is 21 years old. She wants to begin saving for retirement, with the first payment to come one year from now. She can save $7,000 per year, and you advise her to invest it in the stock market, which you expect to provide an average return of 11% in the future. If she follows your advice, how much money will she have at 65? Do not round intermediate calculations. Round your answer to the nearest cent. $ How...

Suppose that you are 21 years old, and making retirement plans. You are starting to contribute...

Suppose that you are 21 years old, and making retirement plans. You are starting to contribute $800 per month to your retirement account at the beginning of each month. You intend to do so until the age of sixty three and then stop the contributions. You will retire at age 67. You receive a 5% APR compounded monthly on your account. How much will you have if you allow interest to accrue to age 67? (K means 1,000's) Group of...

You graduate from College at 21. For your retirement, you decide to invest into a Fidelity...

You graduate from College at 21. For your retirement, you decide to invest into a Fidelity mutual fund that gives you a 7.5% APR compounding monthly. After some years of work, you will retire and move the investment into another Vanguard money market account which gives you a 3% APR compounding monthly. During the years of working, you invest $350 every month. You plan to spend $4,500 every month until you pass away. You estimate that you will pass away...

Meet Lily. Lily is 25 years old. She graduated college with an Associates degree in General...

Meet Lily. Lily is 25 years old. She graduated college with an Associates degree in General Business and works full-time as an office assistant. Lily really enjoys the company she works for, so she took a lower-paying position in the hopes of getting promoted in the near future. She makes a monthly net income of $2,805.92. Lily lives in a small, one-bedroom apartment approximately 20 minutes from her work. Lily overused credit cards while she was attending college and has...

1. Mari and Judy have just graduated from college and are purchasing a condominium. They expect...

1. Mari and Judy have just graduated from college and are purchasing a condominium. They expect that their incomes will be increasing in the next few years. Should they consider a graduated payment or graduated equity mortgage? What are the pros and cons? 2. Alberto and Maureen have just bought their first condominium. They plan on staying in the condo for about five years and then buying a house. What type of mortgage loan would you advise them to get?

Question