2. Retirement problem - When only a lad, Chase began investing $750 per month into a...

2. Retirement problem - When only a lad, Chase began investing $750 per month into a mutual fund that has earned on average 11% annually for the past 20 years.
a. How much is Chase’s account worth today?
b. Assume Chase decides to drop out of society and simply live off this investment. If he continues to earn 11% on the account, what is the maximum amount he can withdraw quarterly, assuming he plans to live 25 more years?

Solutions

Expert Solution

- Chase began investing $750 per month into a mutual fund for the past 20 years.

a). Calculating the Account worth today using FV of annuity formula:-

Where, C= Periodic Payments= $750

r = Periodic Interest rate = 11%/12 =0.916666%

n= no of periods = 20 years*12 = 240

Future Value = $649,228.53

So, Chase’s account worth today is $649,228.53

b). Chase will live on this amount worth today for 25 more year by witrhdrawing Quarterly amount,

calculating the Quarterly withdrawal using PV of annuity formula:-

Where, C= Periodic Payments

r = Periodic Interest rate = 11%/4 =2.75%

n= no of periods = 25 years*4 = 100

C = $19,122.49

So, the maximum amount he can withdraw quarterly is $19,122.49

If you need any clarification, you can ask in comments.

If you like my answer, then please up-vote as it will be motivating

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

Tom starts investing $250 per month at age 20. Bob starts investing $250 per month at...

Tom starts investing $250 per month at age 20. Bob starts investing $250 per month at age 30. Both Tom and Bob are the same age and can each earn 8 percent on their invested funds. If both retire at age 60, how much more will Tom have in his retirement account compared to Bob? A. $500,162 B. $600,162 C. $700.162 D. $400,162

You have one apartment to lease, and the quoted rent is $750 per month. The lease...

You have one apartment to lease, and the quoted rent is $750 per month. The lease term is 12 months. A concession of one month’s free rent is being given in the market, and you are concerned about how this will affect property revenues if one month’s free rent is needed to seal the lease deal. What would the effective rent be for the year if no concession is granted? What would the effective rent be for the one-year term...

An insurance policy offers you the option of being paid $750 per month for 20 years...

An insurance policy offers you the option of being paid $750 per month for 20 years or a lump sum of $50,000. Which has the greater value if the current rate of return is 4.5% compounded monthly and you expect to live for at least 20 years? (Please work out thoroughly, need to understand the work process)

You are investing for retirement starting at age 25. You invest $10,000 per year. During years...

You are investing for retirement starting at age 25. You invest $10,000 per year. During years 1-30 your investments earn 15% per year. During years 31-40 you move to more conservative estimates earning 5% per year. How much will you have saved when you retire at age 65? Assume investments occur at the beginning of each year. What is the IRR of this investment stream? (answer is IRR=11.9%) In excel functions

Assume you put $500 per month into a retirement account for 13 years, and the account...

Assume you put $500 per month into a retirement account for 13 years, and the account has an APR of 3.06% compounded monthly. What is the account balance at the end of the 13 years? Round your answer to the nearest cent. How much of the money in the account at the end of the 13 years is your personal investment, meaning that the money came directly from you? How much of the money in the account at the end...

Assume that you contribute $250 per month to a retirement plan for 25 years. Then you...

Assume that you contribute $250 per month to a retirement plan for 25 years. Then you are able to increase the contribution to $500 per month for another 25 years. Given a 9.0 percent interest rate, what is the value of your retirement plan after the 50 years?

Assume that you contribute $260 per month to a retirement plan for 20 years. Then you...

Assume that you contribute $260 per month to a retirement plan for 20 years. Then you are able to increase the contribution to $460 per month for the next 30 years. Given a 6.0 percent interest rate, what is the value of your retirement plan after the 50 years? (Do not round intermediate calculations and round your final answer to 2 decimal places.)

1-Why logic behind investing in international share funds as against only investing in domestic stocks. 2-...

1-Why logic behind investing in international share funds as against only investing in domestic stocks. 2- why firms to hedge their exposure and why is it important. 3- what is index funds and its advantage （1500 words)

financial calculator Henry calculated that if he saved $500 per month for retirement for 20 years...

financial calculator Henry calculated that if he saved $500 per month for retirement for 20 years and could earn on average a 7.5% return he would have approximately $276,865 at retirement. What would he have if he could earn 8% ? a. $276,865 b. More than $276,865 c. Less than $276,865 d. It cannot be determined please explain

Sue is preparing her financial retirement plan. Shedetermines that she will need $600 per month to...

Sue is preparing her financial retirement plan. She determines that she will need $600 per month to live on in retirement. Her goal is to retire at age 65 and to collect annuity payments for 20 years. The current interest rate is 5%. Sue plans to withdraw the $600 at the beginning of each month. How much money will Sue need to put in her annuity to accomplish her goal?

Subjects