3.53 Two young couples (all about to turn 25 years old) are discussing how to enjoy...

3.53 Two young couples (all about to turn 25 years old) are discussing how to enjoy life. Couple X believes the best way is to sacrifice early in life and retire at a young age. Couple Y believes that you can have fun early in life and still retire at a relatively young age. Both couples plan to invest in the stock market, because they know that the average return over long periods of time is 10% per year without inflation considerations.

Couple X plans to invest $2500 per month (from one of their two salaries) in stocks for 15 years, and then stop investing, but let the account grow for the next 15 years, at which time they will be 55 years old. Couple Y plans to invest no money for the first 15 years, but will begin investing $2500 per month thereafter.

a. How much money will couple X have when they turn 55, if they did start investing 1 month after age 25?

b. How much money will couple Y have when they turn 55, if they started investing 1 month after they turned 40 years old?

c. If couple Y continues to invest $2500 per month beyond the age of 55, at what age will they be able to retire with the same amount of money as couple X?

d. How many extra years did couple Y have to invest $2500 per month to accumulate the same amount of money as couple X?

Expert Solution

SOLUTIONS PROVIDED BELOW ?

Rahul Sunny answered 1 year ago

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