As an investment advisor, you have been approached by a client called Mr. Sobolo, who wants some help in investment-related matters. Mr. Sobolo is currently 45 years old and has Gh₵600,000 in the bank. He plans to work for 15 more years and retire at the age of 60. Mr. Sobolo's present salary is Gh₵ 400,000 per year. He expects his salary to increase at the rate of 12 per cent per year until his retirement. Mr. Sobolo has decided to invest his bank balance and future savings in a portfolio in which stocks and bonds would be equally weighted. For the sake of simplicity, assume that these proportions will be maintained by him throughout. He also believes that bonds would provide a return of 7 per cent and stocks a return of 13 per cent. You concur with his assessment. Once Mr. Sobolo retires at the age of 60 he would like to withdraw Gh₵500,000 per year from his investments for the following 15 years as he expects to live up to the age of 75 years. He also wants to bequeath Gh₵ 1,000,000 to his children at the end of his life. i. Determine the expected rate of returns from the investmen
a) As an investment advisor, you have been approached by a client called Mr. Sobolo, who wants some help in investment-related matters.
Mr. Sobolo is currently 45 years old and has Gh₵600,000 in the bank. He plans to work for 15 more years and retire at the age of 60. Mr. Sobolo's present salary is Gh₵ 400,000 per year. He expects his salary to increase at the rate of 12 per cent per year until his retirement.
Mr. Sobolo has decided to invest his bank balance and future savings in a portfolio in which stocks and bonds would be equally weighted. For the sake of simplicity, assume that these proportions will be maintained by him throughout. He also believes that bonds would provide a return of 7 per cent and stocks a return of 13 per cent. You concur with his assessment.
Once Mr. Sobolo retires at the age of 60 he would like to withdraw Gh₵500,000 per year from his investments for the following 15 years as he expects to live up to the age of 75 years. He also wants to bequeath Gh₵ 1,000,000 to his children at the end of his life.
i. Determine the expected
ii. Using the rate of returns on his investment obtain(a) above, how much money would he need 15 years from now.
iii. How much should Mr. Sobolo save each year for the next 15 years to be able to meet his investment objectives spelt out above? Assume that the savings will occur at the end of each year.
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