You are just 25 years old and you have $50,000 in your retirement saving accounts. You...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
You are just 25 years old and you have $50,000 in your retirement saving accounts. You expect to retire at the age of 65 (work for 40 more years) and expect to live for another 25 years after your retirement. On the day you retire, you want to have enough money in our retirement saving accounts such that you are able to draw $7,000 per month for 25 years. You are conservative in your estimate of interest rate and expect to earn on an average 4.5% on your money during the entire period. A) How much you need to deposit to achieve your post retirement spend your last penny? B) There is one more complication that you realized only at the last day of your age 35! And the end of your age 55 (in 20 year time), you expect your only kid to join a top notch MBA program. You want to help your kid achieve his/her career goal and you plan to give him/ her an onetime grant of $125,000 when he joins the program. How much you need to additionally save each month from age 35 onwards to achieve enough funds at the end of age 65 to meet your original retirement income goal as well as your child's educational goal? C) Suppose your financial situations at age 35 is such that you cannot increase your monthly savings in the pension account. If you still want to give your kid an onetime grant of $125,000 at the end of your age 55, how much reduction in your post retirement monthly income order to accommodate the additional expenditure you have to absorb in of $125,000. each month throughout your working years income goal, if you plan to die on the day you 29) Consider a growth stock. Laramie Connection (LC) has the following data: • Expected EPS next year is $6.50; Payout ratio is 40%; • Return on equity (ROE) is 25% • Costs of capital or discount rate, r = 20 %. A) What is the value of LC's stock? What is the value of LC's growth opportunity? the payout B) What happens to the value of LC's stock if the company increases ratio from 40% to 60%? C) What is the change in the value of LC's growth opportunity relative to part (A) answer? Please explain. the payout D) What happens to the value of LC's stock if the company increases ratio from 40% to 60%, and its ROE is 10% instead of 25%? What is the change in the value of LC's growth opportunity relative to part (A) and part (B) answers? Please explain. You are just 25 years old and you have $50,000 in your retirement saving accounts. You expect to retire at the age of 65 (work for 40 more years) and expect to live for another 25 years after your retirement. On the day you retire, you want to have enough money in our retirement saving accounts such that you are able to draw $7,000 per month for 25 years. You are conservative in your estimate of interest rate and expect to earn on an average 4.5% on your money during the entire period. A) How much you need to deposit to achieve your post retirement spend your last penny? B) There is one more complication that you realized only at the last day of your age 35! And the end of your age 55 (in 20 year time), you expect your only kid to join a top notch MBA program. You want to help your kid achieve his/her career goal and you plan to give him/ her an onetime grant of $125,000 when he joins the program. How much you need to additionally save each month from age 35 onwards to achieve enough funds at the end of age 65 to meet your original retirement income goal as well as your child's educational goal? C) Suppose your financial situations at age 35 is such that you cannot increase your monthly savings in the pension account. If you still want to give your kid an onetime grant of $125,000 at the end of your age 55, how much reduction in your post retirement monthly income order to accommodate the additional expenditure you have to absorb in of $125,000. each month throughout your working years income goal, if you plan to die on the day you 29) Consider a growth stock. Laramie Connection (LC) has the following data: • Expected EPS next year is $6.50; Payout ratio is 40%; • Return on equity (ROE) is 25% • Costs of capital or discount rate, r = 20 %. A) What is the value of LC's stock? What is the value of LC's growth opportunity? the payout B) What happens to the value of LC's stock if the company increases ratio from 40% to 60%? C) What is the change in the value of LC's growth opportunity relative to part (A) answer? Please explain. the payout D) What happens to the value of LC's stock if the company increases ratio from 40% to 60%, and its ROE is 10% instead of 25%? What is the change in the value of LC's growth opportunity relative to part (A) and part (B) answers? Please explain.
Expert Answer:
Answer rating: 100% (QA)
A To calculate the monthly deposit required to achieve the postretirement income goal we can use the future value of an annuity formula The future value of an annuity can be calculated using the follo... View the full answer
Related Book For
Personal Finance Turning Money into Wealth
ISBN: 978-0134730363
8th edition
Authors: Arthur J. Keown
Posted Date:
Students also viewed these accounting questions
-
The Crazy Eddie fraud may appear smaller and gentler than the massive billion-dollar frauds exposed in recent times, such as Bernie Madoffs Ponzi scheme, frauds in the subprime mortgage market, the...
-
You have completed your first meeting with Harper and Riley Evans. You are confident that you now have most of the information you will need to prepare a comprehensive financial plan for them. Beyond...
-
1. Suppose your personal federal income tax rate is 30%. You are trying to decide which of the following bonds to invest in. Both are BBB rated and therefore equally risky. State of Illinois Bond...
-
In Problems 1130, solve each equation by factoring. x 2 - 9x = 0
-
The following information is from the 2009 annual report of American Greetings Corporation (all dollars in thousands). The following information comes from the notes to the company's financial...
-
Formic acid, HCHO2, was first discovered in ants (formica is Latin for ant). In an experiment, 5.48 g of formic acid was burned at constant pressure. 2HCHO2(l ) + O2(g) 2CO2(g) + 2H2O(l) If 30.3 kJ...
-
Marissa's spaceship approaches Joseph's at a speed of \(0.99 c\). As Marissa passes Joseph, they synchronize their clocks to both read \(t=0 \mathrm{~s}\). When Marissa's clock reads \(100...
-
A market analyst wants to know if the new website he designed is showing increased page views per visit. A customer is randomly sent to one of two different websites, offering the same products, but...
-
The correlation of GME and the market is -0.4. The volatility of the market is 30% and the volatility of GME is 86%. What is the beta of GME?
-
The propeller in Prob. 9.1 is replaced with a six-blade turbine 400 mm in diameter, and the fluid to be agitated is a pseudoplastic power law liquid having an apparent viscosity of 15 P when the...
-
How would you rate the legal defensibility of ups driver evaluation program? Explain.
-
Four Flowers Hotel earned $520,000 in revenue for the month of July, with 70% of those sales made on account. During the period, they also collected $40,000 from their outstanding receivables. Four...
-
The Lopes Activity Tracker will be used to document and follow the status of your practice immersion hours throughout this and every subsequent course. Please review the Practice Immersion Hours...
-
. Debit A. The cost of operating a business; a decrease in stockholders' equity 2. Expense B. Assets - Liabilities 3. Net income C. Grouping of accounts 4. Ledger D. Copying data from the journal to...
-
Preston has been working for Thompson Industries for just over a year and has been part of Thompson's Deferred Profit Sharing Plan (DPSP) program from his start date. The program has a 2-year vesting...
-
The company has three preparation In a separate worksheet, reformulate the problem (you can just change the model you created in excel, in part b) to determine if there is an alternative optimal...
-
Suppose that a drug is assimilated into a patient's bloodstream at a rate modeled by the function A(t) = 2te-0.25t where A(t) is in milligrams per minute and it is the number of minutes since the...
-
A stock has had returns of 8 percent, 26 percent, 14 percent, 17 percent, 31 percent, and 1 percent over the last six years. What are the arithmetic and geometric average returns for the stock?
-
If another Austin Powers movie had been released in 2018 and Dr. Evil, now armed with a financial calculator, wants to hold the Earth ransom for $10,000,000, what inflation rate would Dr. Evil use to...
-
Upon her grandmothers death, So-hyun received $100,000 to use for college expenses or for starting her family. The money is in a checking account for So-hyun to use as she chooses. How much tax does...
-
In March 1963, Ironman was first introduced in issue number 39 of Tales of Suspense. The original price for that issue was 12 cents. By March 2018, 55 years later, the value of this comic book had...
-
What are the Returns and Risks currently for the different asset classes?
-
What does the time series state when graphing from the Financial Crisis to the current day for each of the asset classes?
-
What is the P(Gain) for each?
Study smarter with the SolutionInn App