Question

In: Economics

4. To retire at a decent age and move to Hawaii, an engineer plans to trust...

4. To retire at a decent age and move to Hawaii, an engineer plans to trust her account to an investment firm that promises to make a real rate of return of 8% per year when the inflation rate is 2% per year. The account currently is valued at $290,000 and she wants to retire in 12 years. Determine how much (in then-current dollars) will be in the account for the realized rate of return to be a real 8% per year.

Solutions

Expert Solution

Given real interest rate of 8%, inflation of 2%, pv = 290000. nper = 12

We need to find how much this 290000 will be in 12 years. i.e we need to determine the FV.

I have shown two answers with inflation accounted for and unaccounted for.

FV with inflation accounted for =FV(10%,E6,0,-E5,0)

=910,144.23

Here the interest rate to be used is 10% (8%+2%) . Give negative sign to pv value.

FV with inflation unaccounted for =FV(E3,E6,0,-E5,0)

=730,269.33

Here the interest rate to be used is 8% sicne we are considering only the real interest rate.

Rahul Sunny answered 8 months ago
Next > < Previous

Related Solutions

Stephen Watkins 4.Stephen plans to retire in twenty years at age sixty seven, at which time...
Stephen Watkins 4.Stephen plans to retire in twenty years at age sixty seven, at which time he will be in the 24 percent marginal income tax bracket. He is considering the purchase of a $200,000 face value whole life policy. The annual premium is $4,000. Alternatively, he is thinking that he could buy a twenty-year $200,000 face value term policy for $500 per year. a.If he implements a buy term and uses ‘the invest the difference’ strategy, and can earn...
Ann E. Belle is age 45 and plans to retire in 20 years (at age 65)....
Ann E. Belle is age 45 and plans to retire in 20 years (at age 65). She has retirement savings in a mutual fund account, which has a current balance of $150,000 (Ann does not plan to add any additional money to this account).  Also, Ann opened a 401K retirement account with her new employer and will contribute $15,000 per year into her 401K until retirement.   If Ann’s mutual fund account grows at an annual rate of 8.0% how much money...
Ann E. Belle is age 45 and plans to retire in 20 years (at age 65)....
Ann E. Belle is age 45 and plans to retire in 20 years (at age 65). She has retirement savings in a mutual fund account, which has a current balance of $150,000 (Ann does not plan to add any additional money to this account). Also, Ann opened a 401K retirement account with her new employer and will contribute $15,000 per year into her 401K until retirement. solve question algebraically and show work. 1.)If Ann’s 401K account grows at an annual...
Marcia, age 56, is starting to think about retirement. She plans to retire at age 65...
Marcia, age 56, is starting to think about retirement. She plans to retire at age 65 and she expects to liver to age 90. She estimates that she will need $50,000 per year, before tax in retirement to give her the lifestyle she wants. She will receive a non-indexed pension of $25,000 a year plus a combined $12,000 per year in CPP and OAS retirement income. She currently has $70,000 in her RRSP. For planning purposes, Marcia is using a...
Today is Sofia’s 35th birthday. She plans to retire in 32 years at the age of...
Today is Sofia’s 35th birthday. She plans to retire in 32 years at the age of 67, with expected life expectancy of 30 years after that. To maintain her life style, she thinks she will have to withdraw $8,000 from retirement account at the beginning of each month during retirement. Meanwhile, she plans to donate $100 to charity starting on her 70th birthday, and the monthly payment will continue till she passes away. In addition, she would like to establish...
Hugo is now 50 and plans to retire by the age 60. He is single, owns...
Hugo is now 50 and plans to retire by the age 60. He is single, owns an apartment with current market value around HKD 4.5 million, with a mortgage to be paid down in 10 years. Currently, he has an income of $30,000 per month but does not have much savings (after all expenses including mortgage) but expects to have HKD 1 million in his MFP account when he retires. He figures that he needs $12,000 per month ($144,000 per...
Cathy Kung, 25, plans to retire at the age of 65. She estimates that she will...
Cathy Kung, 25, plans to retire at the age of 65. She estimates that she will need $50,000 in the first year of her retirement, and this post-retirement expenditure will increase at the rate of inflation of 2% per year. Based on her family history, she does not expect to live beyond the age of 90. After retirement, she will invest her money in bank deposits with an expected rate of return of 4% per year. Her post-retirement marginal tax...
Cathy Kung, 25, plans to retire at the age of 65. She estimates that she will...
Cathy Kung, 25, plans to retire at the age of 65. She estimates that she will need $50,000 in the first year of her retirement, and this post-retirement expenditure will increase at the rate of inflation of 2% per year. Based on her family history, she does not expect to live beyond the age of 90. After retirement, she will invest her money in bank deposits with an expected rate of return of 4% per year. Her post-retirement marginal tax...
1. George is currently 30 years old, plans to retire at the age of 65 and...
1. George is currently 30 years old, plans to retire at the age of 65 and to live to the age of 85. His labor income is $25,000 per year, and he intends to maintain a constant level of real consumption spending over the next 55 years. Assume no taxes, no growth in real salary, and a real interest rate of 3% per year. a. What is the value of George’s human capital? b. What is his permanent income? c....
5.Kate plans to retire at age 60. At that time, she wants to have enough to...
5.Kate plans to retire at age 60. At that time, she wants to have enough to invest in a travel account so that she can go on a world trip every four years until she reaches 76, i.e. at ages 64, 68, 72 and 76. Each trip will cost $10138. If the interest rate is 4.9% p.a. compounded quarterly, how much should she deposit in the travel account at age 60. (Give your answer to the nearest cent, omitting the...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT