If you project a rate of inflation of 4%, what nominal ROR on investments would you need
Question:
If you project a rate of inflation of 4%, what nominal ROR on investments would you need to maintain the same real retirement annuity as in Spreadsheet 20.2?
Transcribed Image Text:
SPREADSHEET 20.2 A real retirement plan excel Please visit us at www.mhhe.com/bkm 1 2 3 4 5 39 40 A B C 1 Retirement Years Income growth Rate of Inflation 2 0.03 Deflator 3 4 5 9 19 29 39 40 A Retirement Years 25 Age 30 31 65 Total 25 Age 30 31 35 45 55 65 Total 0.07 Income B Income Growth 0.07 Income 50,000 53,500 70,128 137,952 271,372 533.829 7,445,673 C Rate of Inflation 0.03 Deflator D Savings Rate 0.15 Savings 50000 =B4*$D$2 =B4*(1+$B$2) =C4*(1+$C$2) =B5*$D$2 =B38*(1+$B$2) =C38*(1+$C$2) =B39*$D$2 =SUM(B4:B39) 1 1.00 1.03 1.16 1.56 2.09 2.81 D Savings rate 0.15 Saving F E ROR TROR 0.06 0.0291 Cumulative Savings rConsumption 7,500 15.975 61,658 308,859 943,477 7,500 8,025 10,519 20.693 40,706 80.0741 1,116,851 2,457,518 Real Annuity E ROR 0.06 Cumulative Savings =D4 =SUM(D4:D39) Real Annuity 42,500 44,150 51,419 75,264 110,167 161,257 49,668 F TROR rConsumption =(E2-C2)/(1+C2) =(B4-D4V/C4 (B5-D5)/C5 =E4*(1+$E$2)+D5 =E38*(1+$E$2)+D39 =(B39-D39)/C39 | =PMT($F$2,$A$2,-$E$39/$C$39,0,0)
Fantastic news! We've Found the answer you've been seeking!
Step by Step Answer:
Answer rating: 60% (5 reviews)
Intuition suggests you need to keep the real rate 291 constant that is in...View the full answer
Answered By
Sidharth Jain
My name is Sidharth. I completed engineering from National Institute of Technology Durgapur which is one of the top college in India. I am currently working as an Maths Faculty in one of the biggest IITJEE institute in India. Due to my passion in teaching and Maths, I came to this field. I've been teaching for almost 3 years.
Apart from it I also worked as an Expert Answerer on Chegg.com. I have many clients from USA to whom I teach online and help them in their assignments. I worked on many online classes on mymathlab and webassign. I guarantee for grade 'A'.
4.90+
3+ Reviews
10+ Question Solved
Related Book For
Essentials Of Investments
ISBN: 9780073368719
7th Edition
Authors: Zvi Bodie, Alex Kane, Alan J. Marcus
Question Posted:
Students also viewed these Business questions
-
Use a convergence test of your choice to determine whether the following series converge or diverge. 00 k=1 In k 2 k 2
-
You are an independent financial planner in Sydney, Australia. It is currently April 2020 and you have just concluded a meeting with your client below. Client: Muhammad. Marital Status: Single,...
-
Suppose that the nominal interest rate before taxes equals 8 percent, the rate of inflation equals 3 percent, and the tax rate equals 25 percent. (a) Suppose that nominal interest is taxed. What are...
-
Think about someone you know who is an entrepreneur. What are the advantages of owning their own business? What are the disadvantages? Why did they start their business? What method did they use to...
-
Suppose you are planning to sample cat owners to determine the average number of cans of cat food they purchase monthly. The following standards have been set: a confidence level of 99 percent and an...
-
Paladin Furnishings generated $4 million in sales during 2021, and its year-end total assets were $3.2 million. Also, at year-end 2021, current liabilities were $500,000, consisting of $200,000 of...
-
Identify the functions pertaining to the executing and the recording of purchases and cash disbursements transactions and custody of related assets.
-
The following data give the selling price, square footage, number of bedrooms, and age of houses that have sold in a neighborhood in the past 6 months. Develop three regression models to predict the...
-
26. Consider the AVL tree resulting from sequentially inserting the following numbers into an empty AVL tree: 40, 60, 55, 15, 20, 2, 25, 30. What is the sum of the numbers in the leaf nodes in the...
-
Using the data in Table 19.15, compute the managers country and currency selection if portfolio weights had been 40% in Europe, 20% in Australia, and 40% in the Far East. TABLE 19.15 Example of...
-
Are you indifferent between an increase in the low-income bracket tax rate versus an equal increase in the high bracket tax rates?
-
Assume Alice needs to send an e-mail to Bob. Explain how the integrity of the e-mail is achieved using PGP.
-
You are a Pennsylvania State Senator on the Pennsylvania Public Health Committee. The Committee will vote in 24 hours on Health Bill 105 ("HB 105"). HB 105 seeks to make the consumption of animal...
-
Your United States Senator has called you to ask for jurisprudential help. They are proposing a new bill, "The Good Acts Bill," which would require persons in the state to render aid to persons in...
-
Give a review/outline about what prior restraint is, thengive a summary write-up of theMICROSOFT CORPORATION v. UNITED STATES DEPARTMENT OF JUSTICE case (CASE NO. C16-0538JLR), (Signed...
-
"Bart" is a comic book collector. "Comic Guy" is the owner of The Androids Dungeon Baseball Shop. "Mr.Burns" is a wealthy investor/company owner. "Waylon" is an employee of Mr. Burns. He would do...
-
A United States Naval base in San Diego, California is currently uninhabitable after a sailor became very ill due to an infectious disease causing a global pandemic. Approximately 6,000 sailors are...
-
Where would your university or college department be located on Perrow's technology framework? Would a department devoted exclusively to teaching be put in a different quadrant from a department...
-
Provide a few individual examples who revealed what aspects of emotional intelligence?
-
Reconsider the two stocks in Concept Check 8.2. Suppose we form an equally weighted portfolio of A and B. What will be the nonsystematic standard deviation of that portfolio? Concept Check 8.2...
-
Suppose that the index model for the excess returns of stocks A and B is estimated with the following results: Find the standard deviation of each stock and the covariance between them. = RA 1.0%...
-
The data below describe a three-stock financial market that satisfies the single-index model. The standard deviation of the market-index portfolio is 25%. a. What is the mean excess return of the...
-
How much would Phoebe have to invest today, in one lump sum, to end up with $50,000 in eight years? You will have to figure Present Value (PV). There is a present value calculator available on the...
-
Compute the payback period for new piece of equipment for an outpatient orthopedic clinic based on the following assumptions: 1. Purchase price of the new equipment = $135,000 2. Useful life = 3...
-
1. Explain the main difference(s) between Direct and Indirect taxes. Provide examples. 2. Present the proforma income tax computation for 2019/20 as it has been taught in the context of the current...
Study smarter with the SolutionInn App