Suppose you are planning for your retirement in 45 years time. You currently have $1,000 invested in
Question:
Suppose you are planning for your retirement in 45 years’ time. You currently have $1,000 invested in a money market account and $1,000 in a share market fund. The money market account is estimated to earn an annual return of 5.25% whereas the share market fund is expected to earn an annual return of 13.5%. You plan to add $150 per month at the end of each month for the next 45 years to the money market account and $150 per month to the share market fund.
When you retire, you plan to withdraw an equal amount for each of the next 35 years at the end of each month and have nothing left at the end (of 35 years after retirement). Additionally, when you retire you will transfer all amount from these two funds into a saving account that earns 3.5% annual rate of interest per year. [Note: All interest rates (of returns) are to be compounded monthly.]
- Assuming that the rates will remain as forecasted, how much will you have (sum of all funds) at the time you retire? Show all formula(s) and steps, clearly label the final answer. Briefly interpret your answer.
- Assuming that the rates will remain as forecasted, how much can you withdraw each month when (and after) you retire? Show all formula(s) and steps, clearly label the final answer. Briefly interpret your answer.
Financial and Managerial Accounting
ISBN: 978-0132497978
3rd Edition
Authors: Horngren, Harrison, Oliver