You are planning for your retirement after 25 years from now, which is expected to last for
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You are planning for your retirement after 25 years from now, which is expected to last for 30 years. There are two investment options available to you:
1) Progressive Investment Fund, earning a nominal APR of 29.7% (compounded daily),
2) Worldwide Stock Fund, earning a nominal APR of 30.12% (compounded monthly). Assume that the risk of the two investments is the same. What is your monthly saving in real terms if you are spending $10,000 per month now and you want to maintain the same lifestyle after retirement? Assume the inflation rate (expressed as monthly compounded APR) is 6%.
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nternational Research Journal of Applied Finance ISSN 2229-6891 Vol. VII Issue - V May, 2016 Case Study Series "So, there was like a 30% drop in the stock price over that period, which comes to roughly a 60% drop in annualized terms" Adam added. "Wow! I can't believe this steep decline. I know the company has not offered the Iphone 7 yet. so the sales and the profits declined. But, this drop is too much in my opinion" John exclaimed. Carol added "Yes, and I think valuing the stock correctly now is very important. Right now, lots of people are losing money in this stock". John concludes "Guys, I will work on a few scenarios for dividends and work on Apple's valuation this afternoon. Meanwhile, you can collect other information on the company like cash flows, competition, etc. We can meet at 6 p.m. this evening to really delve into this. We can go from there. But, be ready for a long night". "Sure. No problem for me" Carol responds. Adam confirms "Yes, we need to hurry up. We don't want to make Mr. Jacobs mad for sure". Apple's Recent Performance Apple is the world's largest information technology company by revenue and the world's largest technology company by total assets. It is the world's second-largest mobile phone manufacturer. In November 2014. Apple became the first U.S. company to be valued at over US$700 billion. As of July 2015, the firm employs 115,000 permanent full-time employees. As of March 2016, Apple has 475 retail stores in seventeen countries. Apple also operates the online Apple Store and iTunes Store. The iTunes Store is currently the world's largest music retailer. As of March 2016, there are over one billion actively used Apple products worldwide. For the fiscal year ending in September 2015. Apple's worldwide annual revenue was $233 billion. This is approximately 1.25% of the total United States GDP. According to the 2014 edition of the Interbrand Best Global Brands report, Apple is the world's most valuable brand. Recently, however, the company's problems and its slowing sales have resulted in a sharp decline in its stock price. Apple's performance has been declining. The firm's second-quarter sales declined 13 percent to $50.6 billion from $58 billion a year earlier. That compared with an average analyst estimate of $52 billion. Its net income declined to $10.5 billion, while Iphone shipments fell 16 percent. Sales in the third quarter, which ends in June, will be $41 billion to $43 billion. On average, analysts estimated revenue of $47,4 billion. Bloomberg reports that "Apple Inc.'s streak of 51 consecutive quarters of uninterrupted sales growth is over- and its expansion may not resume until late this year. A boom in demand for smartphones, music players and other electronic devices propelled Apple's annual revenue by $227 billion in the 13 years since the last quarterly drop, resulting in a skyrocketing stock price nternational Research Journal of Applied Finance ISSN 2229-6891 Vol. VII Issue - V May, 2016 Case Study Series "So, there was like a 30% drop in the stock price over that period, which comes to roughly a 60% drop in annualized terms" Adam added. "Wow! I can't believe this steep decline. I know the company has not offered the Iphone 7 yet. so the sales and the profits declined. But, this drop is too much in my opinion" John exclaimed. Carol added "Yes, and I think valuing the stock correctly now is very important. Right now, lots of people are losing money in this stock". John concludes "Guys, I will work on a few scenarios for dividends and work on Apple's valuation this afternoon. Meanwhile, you can collect other information on the company like cash flows, competition, etc. We can meet at 6 p.m. this evening to really delve into this. We can go from there. But, be ready for a long night". "Sure. No problem for me" Carol responds. Adam confirms "Yes, we need to hurry up. We don't want to make Mr. Jacobs mad for sure". Apple's Recent Performance Apple is the world's largest information technology company by revenue and the world's largest technology company by total assets. It is the world's second-largest mobile phone manufacturer. In November 2014. Apple became the first U.S. company to be valued at over US$700 billion. As of July 2015, the firm employs 115,000 permanent full-time employees. As of March 2016, Apple has 475 retail stores in seventeen countries. Apple also operates the online Apple Store and iTunes Store. The iTunes Store is currently the world's largest music retailer. As of March 2016, there are over one billion actively used Apple products worldwide. For the fiscal year ending in September 2015. Apple's worldwide annual revenue was $233 billion. This is approximately 1.25% of the total United States GDP. According to the 2014 edition of the Interbrand Best Global Brands report, Apple is the world's most valuable brand. Recently, however, the company's problems and its slowing sales have resulted in a sharp decline in its stock price. Apple's performance has been declining. The firm's second-quarter sales declined 13 percent to $50.6 billion from $58 billion a year earlier. That compared with an average analyst estimate of $52 billion. Its net income declined to $10.5 billion, while Iphone shipments fell 16 percent. Sales in the third quarter, which ends in June, will be $41 billion to $43 billion. On average, analysts estimated revenue of $47,4 billion. Bloomberg reports that "Apple Inc.'s streak of 51 consecutive quarters of uninterrupted sales growth is over- and its expansion may not resume until late this year. A boom in demand for smartphones, music players and other electronic devices propelled Apple's annual revenue by $227 billion in the 13 years since the last quarterly drop, resulting in a skyrocketing stock price
Expert Answer:
Answer rating: 100% (QA)
Assuming that the risk of the two investments is the same the monthly saving in real terms is 2 032 ... View the full answer
Related Book For
Macroeconomics
ISBN: 978-1319120054
3rd Canadian edition
Authors: Paul Krugman, Robin Wells , Iris Au , Jack Parkinson
Posted Date:
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