Question

In: Finance

An individual wants to retire in 25 years. At that time (s)he wants to be able...

An individual wants to retire in 25 years. At that time (s)he wants to be able to withdraw $2500 per month to cover living expenses. This individual has an expectation that (s)he will live 25 years after the date of retirement.

The interest rate is 6% per year.

This individual has assumed that:

The interest rate is constant over time True False

The expected time frames are 25 years True False

There are no additional risks to be considered True False

There is money left over 50 years from now True False

This is a short-term investment plan True False

Expert Solution

Note:

The question seems a bit incomplete. But with a few assumptions I have answered the true / false questions

a) The interest rate is constant over time True

Reason: The interest rate is 6% PER YEAR

b) The expected time frames are 25 years - False

Reason: The usual scenario in these type of questions is that, monthly/ yearly deposits are made till retirement (25yrs) and then for the next 25yrs which is the period of retirement these deposits are then withdrawn. Also if you note, withdrawal has been mentioned as 2500 PER MONTH for the 25yrs during retirement, therfore for this period n or period is 25yrs * 12 months = 300

c) There are no additional risks to be considered - True

Reason: In the absence of any mention of risk like defaulting, job in danger etc. we can assume there is no risk

d) There is money left over 50 years from now - False

Reason: Money has to FIRST BE DEPOSITED, then there will be an accumulated amount which will then be withdrawn at 2500 per month during the retirement period.

e) This is a short-term investment plan - False

Reason: a planning of making deposits for the first 25 years anf then withdrawing the next 25yrs is definitely not short term

jeff jeffy answered 2 years ago

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