Question

In: Finance

In this assignment, you will use a simple version of a portfolio where your money is...

In this assignment, you will use a simple version of a portfolio where your money is distributed across three categories: stocks, bonds, and cash. Refer to this module’s readings to review historical return values.

Category	Average Annual Return
Stocks	6.0%
Bonds	2.1%
Cash	1.0%

Your portfolio will be diversified across these three different types of investments. The amount that you decide to put into each will greatly depend upon what stage of life you are in. If you are young and just starting out in your career, you may want to have a high-risk portfolio with the hope of high returns in the distant future. However, if you are near the end of your career, you may want to choose a less risky portfolio.

Create your own portfolio that addresses the following:

After retirement, how much will you like to have annually in order to maintain the standard of living that you expect to have?

How much annually do you plan to set aside for your retirement plan?

How much of this annual contribution will you want to invest in each of the investment categories?

How many years will you work from now until you retire?

Click here to download the retirement Excel spreadsheet you will need for this assignment.

Put the values that you decided on above into the retirement spreadsheet.

Respond to the following

What is your retirement goal? Can you realistically reach the goal that you have set? How long will it take to achieve this retirement goal?

How much money will you need to save in order to achieve your retirement goal?

This assignment assumes that the interest rates will remain constant for the entire life of the retirement plan. Is this a realistic situation?

Are you planning to have a high-risk or a low-risk portfolio? Explain.

What other factors related to contributing to the typical retirement plan must you consider when managing your portfolio?

What impact will inflation have on your calculations?

Years Until Retirement

Retirement Amount Goal
Total Future Value of Retirement Account
Difference

	Amount Invested Monthly	Annual investment	Future Value
Stocks	6%
Bonds	2.10%
Cash	1%

Expert Solution

Current age(year)	35	Retirement Age(year)	60
Years Until Retirement	25		Inflation rate (expection)	2%
Life expectency (post retirement)	30 years
Current annual cost for standard of living	$12,000
future annual cost for standard of living	$19,687		Rate of annuity on retirement fund (assumed)	4%
Required retirement Fund ( by present value of Annuity)	$340,428

Annual Investment towards Retirement Corpus	$6,500
				Future Value
Asset	Expected Return	Portion of Investment	Annual investment	Total Principal	Total Interest	Total Amount
Stocks	6%	70%	$4,550	$113,750	$150,862	$264,612
Bonds	2.10%	25%	$1,625	$40,625	$13,201	$53,826
Cash	1%	5%	$325	$8,125	$1,146	$9,271

					Total Corpus	$327,709

Short fall of fund = $12,719

Response :

What is your retirement goal? Can you realistically reach the goal that you have set? How long will it take to achieve this retirement goal?

Answer : Retirement goal is to create corpus to maintain the standard of living. I have 25 years to achieve decided goal.

How much money will you need to save in order to achieve your retirement goal?

Answer : The annual saving should be more than $ 6600

This assignment assumes that the interest rates will remain constant for the entire life of the retirement plan. Is this a realistic situation?

Answer : the interest rates can not be remain constant for the entire life of the retirement plan in the real life situation.

Are you planning to have a high-risk or a low-risk portfolio? Explain.

Answer : At my current age , i would like to invest more than 70% of my total invesment in the risky portfolio

What other factors related to contributing to the typical retirement plan must you consider when managing your portfolio?

Answer : The inflation factor is one the most important factors to be consider

What impact will inflation have on your calculations?

Answer : The inflation rate helps in to decide the amount required to maintain the cost for standard of living in future after retirement time.

jeff jeffy answered 2 years ago

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