Stefani German, a 40-year-old woman, plans to retire at age 65, and she wants to accumulate $420,000 over the next 25 years to supplement the retirement programs provided by the federal government and her employer. She expects to earn an average annual return of about 6% by investing in a low-risk portfolio containing about 20% short-term securities, 30% common stock, and 50% bonds. Stefani currently has $32,620 that at an annual rate of return of 6% will grow to about $140,000 by her 65th birthday (the $140,000 figure is found using time value of money techniques, Chapter 4 Appendix.) Stefani consults a financial advisor to determine how much money she should save each year to meet her retirement savings objective. The advisor tells Stefani that if she saves about $18.23 each year, she will accumulate $1,000 by age 65. Saving 5 times that amount each year, $91.15, allows Stefani to accumulate roughly $5,000 by age 65. a. How much additional money does Stefani need to accumulate over time to reach her goal of $420,000? b. How much must Stefani save to accumulate the sum calculated in part a over the next 25 years?
Stefani German, a 40-year-old woman, plans to retire at age 65, and she wants to accumulate $420,000 over the next 25 years to supplement the retirement programs provided by the federal government and her employer. She expects to earn an average annual return of about 6% by investing in a low-risk portfolio containing about 20% short-term securities, 30% common stock, and 50% bonds. Stefani currently has $32,620 that at an annual rate of return of 6% will grow to about $140,000 by her 65th birthday (the $140,000 figure is found using time value of money techniques, Chapter 4 Appendix.) Stefani consults a financial advisor to determine how much money she should save each year to meet her retirement savings objective. The advisor tells Stefani that if she saves about $18.23 each year, she will accumulate $1,000 by age 65. Saving 5 times that amount each year, $91.15, allows Stefani to accumulate roughly $5,000 by age 65. a. How much additional money does Stefani need to accumulate over time to reach her goal of $420,000? b. How much must Stefani save to accumulate the sum calculated in part a over the next 25 years?
Chapter5: The Time Value Of Money
Section: Chapter Questions
Problem 10P
Related questions
Question
Stefani German, a 40-year-old woman, plans to retire at age 65, and she wants to accumulate
$420,000
over the next
25
years to supplement the retirement programs provided by the federal government and her employer. She expects to earn an average annual return of about
6%
by investing in a low-risk portfolio containing about
20%
short-term securities,
30%
common stock, and
50%
bonds.Stefani currently has
rate of return of
$32,620
that at an annual 6%
will grow to about
$140,000
by her 65th birthday (the
$140,000
figure is found using time value of money techniques, Chapter 4 Appendix.) Stefani consults a financial advisor to determine how much money she should save each year to meet her retirement savings objective. The advisor tells Stefani that if she saves about
$18.23
each year, she will accumulate $1,000 by age 65. Saving 5 times that amount each year,
$91.15,
allows Stefani to accumulate roughly $5,000 by age 65.a. How much additional money does Stefani need to accumulate over time to reach her goal of
$420,000?
b. How much must Stefani save to accumulate the sum calculated in part a over the next
25
years?Expert Solution
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