Did Alfred Road, who is well-known to drivers on the Maine Turn- inflation. That is, they will be automatically increased in propor- pike, has reached his seventieth birthday and is ready to retire. Mr. tion to changes in the consumer price index. Road has no formal training in finance but has saved his money and nvested carefully. Mr. Road owns his home-the mortgage is paid off-and does not want to move. He is a widower, and he wants to bequeath the inflation, but the interest on his investment portfolio will not. ouse and any remaining assets to his daughter. He has accumulated savings of $180,000, conservatively the interest from his investment portfolio? How much could he nvested. The investments are yielding 9% interest. Mr. Road also nas $12,000 in a savings account at 5% interest. He wants to keep value intact? he savings account intact for unexpected expenses or emergencies. Mr. Road's basic living expenses now average about $1,500 per month, and he plans to spend $500 per month on travel and hob- pies. To maintain this planned standard of living, he will have to rely on his investment portfolio. The interest from the portfolio is $16,200 per year (9% of $180,000), or $1,350 per month. Mr. Road will also receive $750 per month in Social Security ayments for the rest of his life. These payments are indexed for Mr. Road's main concerm is with inflation. The inflation rate has been below 3% recently, but a 3% rate is unusually low by histori- cal standards. His Social Security payments will increase with What advice do you have for Mr. Road? Can he safely spend all withdraw at year-end from that portfolio if he wants to keep its real Suppose Mr. Road will live for 20 more years and is willing to use up all of his investment portfolio over that period. He also wants his monthly spending to increase along with inflation over that period. In other words, he wants his monthly spending to stay the same in real terms. How much can he afford to spend per month? Assume that the investment portfolio continues to yield a 9% rate of return and that the inflation rate will be 4%.

Did Alfred Road, who is well-known to drivers on the Maine Turn- inflation. That is, they will be automatically increased in propor- pike, has reached his seventieth birthday and is ready to retire. Mr. tion to changes in the consumer price index. Road has no formal training in finance but has saved his money and nvested carefully. Mr. Road owns his home-the mortgage is paid off-and does not want to move. He is a widower, and he wants to bequeath the inflation, but the interest on his investment portfolio will not. ouse and any remaining assets to his daughter. He has accumulated savings of $180,000, conservatively the interest from his investment portfolio? How much could he nvested. The investments are yielding 9% interest. Mr. Road also nas $12,000 in a savings account at 5% interest. He wants to keep value intact? he savings account intact for unexpected expenses or emergencies. Mr. Road's basic living expenses now average about $1,500 per month, and he plans to spend $500 per month on travel and hob- pies. To maintain this planned standard of living, he will have to rely on his investment portfolio. The interest from the portfolio is $16,200 per year (9% of $180,000), or $1,350 per month. Mr. Road will also receive $750 per month in Social Security ayments for the rest of his life. These payments are indexed for Mr. Road's main concerm is with inflation. The inflation rate has been below 3% recently, but a 3% rate is unusually low by histori- cal standards. His Social Security payments will increase with What advice do you have for Mr. Road? Can he safely spend all withdraw at year-end from that portfolio if he wants to keep its real Suppose Mr. Road will live for 20 more years and is willing to use up all of his investment portfolio over that period. He also wants his monthly spending to increase along with inflation over that period. In other words, he wants his monthly spending to stay the same in real terms. How much can he afford to spend per month? Assume that the investment portfolio continues to yield a 9% rate of return and that the inflation rate will be 4%.

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter9: Decision Making Under Uncertainty

Section: Chapter Questions

Problem 36P

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