Question
Asked Oct 16, 2019
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2. Your client is 30 years old and wants to retire at age 55. They currently have $100,000 in their 401k
plan. The portfolio you recommend has an 8% expected return. Ifyour client adopts your
recommendations and starts monthly contributions of $350 a month starting ONE MONTH from today,
how much do you project you client will have at retirement?
Age when client plans to retire:
Current age of client
Years until client plans to retire
I/Y
PMT
FV
PV
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2. Your client is 30 years old and wants to retire at age 55. They currently have $100,000 in their 401k plan. The portfolio you recommend has an 8% expected return. Ifyour client adopts your recommendations and starts monthly contributions of $350 a month starting ONE MONTH from today, how much do you project you client will have at retirement? Age when client plans to retire: Current age of client Years until client plans to retire I/Y PMT FV PV

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Expert Answer

Step 1

Hence, the present value of monthly contribution is $44,835.

The present value of the contribution made each month for 25 years is calculated by multiplying the amount invested each month by 12 to make it yearly amount and then multiply it with present value of annuity factor at a discount rate of 8%.

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PV of monthly contribution = Yearly amount x PVAF (8%,25years) =(S350x12)x10.675 =$44, 835

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Step 2

Hence, the FV at the age of 55 years  is $134,505.

 The value of the contribution made each month at the age of 55 years is calculated by multiplying the principal amount with rate of interest after adding 1 in it and taken time as power.

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FV of contribution at the age of 55years Principal (1+rate) =$44,835(1+0.08) = $44,835x3 $134,505

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Step 3

Hence, the future value of current account is $300,000.

The Future value of current amount is calculated by multipl...

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FV of current amount Amount deposited (1+rate) =s100,000(1+0.08)5 $100,000x 3 $300,000

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