Twin sisters, Joanna and Liz, received today $44,000 each from their parents for their 24th birthday. They will use this money to start their retirement plans.

They both hope to retire with $1.5 million dollars. Each plans to make a $1,000 monthly contribution to her retirement fund, beginning one month from today.

Joanna opened an account with the Conservative Bond Fund, a mutual fund that invests in high-quality bonds whose investors have earned 4.7% per year in the past.

Liz invested in the Aggressive Growth Fund, which invests in small, bio-tech stocks and whose investors have earned an average of 7.9% per year in the fund’s short history.

a)If the two women’s funds earn the same returns in the future as in the past, how old will each be when she reaches her retirement goal? Round your answer to the nearest whole year

b) How much would Liz's retirement fund grow tom if she invests for the exact same time as Joanna needs to reach her initial goal?

c) How large would Joanna's monthly contributions have to be for her to reach her retirement goal at the exact same time as Liz needs to reach her initial goal?

d) Is it rational or irrational for Joanna to invest in the bond fund rather than in stocks?

Answer rating: 100% (QA)

a To find out how old each sister will be when they reach their retirement goal we can use the future value formula FV PMT x 1 rn 1 r where FV is the ... View the full answer