A couple want to retire together 1 5 years from today. They have managed to save $
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A couple want to retire together years from today. They have managed to save $ at the bank presently earning interest per annum, compounding monthly. The couple will also start contributing $ per month to their retirement. The couple has estimated that on retirement they would need a lump sum of $ to support them in a reasonably comfortable lifestyle for years.
The couple have investment options
Keep their present and future savings in the bank, earning the present rate of interest of
Invest in the securities of Investment House, with an average return of per annum, compounding monthly. The financial broker will receive commissions of of the value of invested funds.
Invest in the securities of Financial Solutions, with an average return of per annum, compounding monthly. The financial broker will receive commissions of of the value of invested funds.
a Assuming the rate of return remain the same for each option, how long would it take to raise the $ for each of the investment options?
i For options and calculate based on leaving the present $ at the bank earning interest per annum, compounding monthly.
ii For investment option and also calculate based on withdrawing the $ from the bank and investing this into securities of option and
b Which, if any, option would allow them to reach their $ goal in years?
c With the options that allow the couple reach their goal of $ in years, assume that after retirement the interest rate will be per annum, compounding annually. What would be the regular sum the couple would be able to withdraw each year for years of retirement?
d What is the effective annual return from Financial Solutions securities
e Explain what compounding is and how it impacts on the calculations in Questions a i a ii b and c
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
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