You are planning to save for retirement over the next 30 years. To save for retirement, you will invest $1,200 a month in a stock account in real dollars and $545 a month in a bond account in real dollars. The effective annual return of the stock account is expected to be 11 percent and the bond account will earn 7 percent. When you retire, you will combine your money into an account with an effective annual return of 8 percent. The inflation rate over this period is expected to be an effective annual rate of 4 percent. a. How much can you withdraw each month from your account in real terms assuming a withdrawal period of 25 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the nominal dollar amount of your last withdrawal? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
You are planning to save for retirement over the next 30 years. To save for retirement, you will invest $1,200 a month in a stock account in real dollars and $545 a month in a bond account in real dollars. The effective annual return of the stock account is expected to be 11 percent and the bond account will earn 7 percent. When you retire, you will combine your money into an account with an effective annual return of 8 percent. The inflation rate over this period is expected to be an effective annual rate of 4 percent. a. How much can you withdraw each month from your account in real terms assuming a withdrawal period of 25 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the nominal dollar amount of your last withdrawal? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter27: Investment, The Capital Market, And The Wealth Of Nations
Section: Chapter Questions
Problem 9CQ
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You are planning to save for retirement over the next 30 years. To save for retirement, you will invest $1,200 a month in a stock account in real dollars and $545 a month in a bond account in real dollars. The effective annual return of the stock account is expected to be 11 percent and the bond account will earn 7 percent. When you retire, you will combine your money into an account with an effective annual return of 8 percent. The inflation rate over this period is expected to be an effective annual rate of 4 percent. |
| a. |
How much can you withdraw each month from your account in real terms assuming a withdrawal period of 25 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| b. | What is the nominal dollar amount of your last withdrawal? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
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