Answered: Suppose you retire with $1million at…

PFIN (with PFIN Online, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)

6th Edition

ISBN:9781337117005

Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Chapter13: Investing In Mutual Funds, Etfs, And Real Estate

Section: Chapter Questions

Problem 7FPE

See similar textbooks

Related questions

Question

Suppose you retire with $1million at age of 65.

You plan to invest your retirement into a mixture of a riky fund and a fixed income fund, where the return of the risky fund follows a normal distribution.

You plans to withdraw $150,000 at the end of every year from this accout.

To prevent overwithdrawal at the end, you put a safety cushion of 3

If balance of the retirement fund at the end of year, before annual withdrawal is less than 3 times the planned annual withdrawal amount, you withdraw one-third of the remaining balance. (Hint: use IF function)

You want to find out how much you are left at the age of 75.

Simulate one time to find out the remaining balance at the age of 17 ( 10 years later)
Simulate 100 times, find out average, standard deviation, along with probabilty of the remaining fund is positive.

Transcribed Image Text:Current wealth ($) Risk-free rate Parameters of risky investment Expected annual return Standard deviation of return Proportion invested in risky Safety cushion Annual withdrawal Year 1 1,000,000 Suppose you retire with $1million at age of 65 You plan to invest your retirement into a mixtu the return of the risky fund follows a normal c Select the snip mode using the Mode button or click the ? New button. 6% Snipping Tool is moving... You plans to withdraw $150,000 at the end of 8% In a future update, Snipping Tool will be moving to a new home. Try improved features and snip like usual with Snip & Sketch (or try the shortcut Windows logo key + Shift + S). To prevent overwithdrawal at the end, you pu If balance of the retirement fund at the end of the planned annual withdrawal amount, you w use IF function) 20% 70% Try Snip & Sketch 3 PICTI you you You want to find out how much you are left at 1. Simulate one time to find out the remaining 2. Simulate 100 times, find out average, standard deviation, along with probabilty of the remaining fund is positive. 150,000 Balance end Balance beginning Invested in Invested in risky bonds Ret. on risky fund of year bf withdrawal withdrawal Left at end of 10 years of year

Features Features Normal distribution is characterized by two parameters, mean (µ) and standard deviation (σ). When graphed, the mean represents the center of the bell curve and the graph is perfectly symmetric about the center. The mean, median, and mode are all equal for a normal distribution. The standard deviation measures the data's spread from the center. The higher the standard deviation, the more the data is spread out and the flatter the bell curve looks. Variance is another commonly used measure of the spread of the distribution and is equal to the square of the standard deviation.

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.