Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)
7th Edition
ISBN: 9780357033609
Author: Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher: Cengage Learning
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Chapter 2, Problem 8FPE
Inflation and interest rates. Jessica Adams is 21 years old and has just graduated from college. In considering the retirement investing options available at her new job, she is thinking about the long-term effects of inflation. Help her by answering the following related questions:
- a. Explain the effect of long-term inflation on meeting retirement financial planning goals.
- b. If long-term inflation is expected to average 4 percent per year and you expect a long-term investment return of 7 percent per year, what is Jessica’s long-term expected real
rate of return (adjusted for inflation)? Be sure to consider the important impact of compounding.
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Lillian Coleman is 21 years old and has just graduated from college. In considering the retirement investing options available at her new job, she is thinking about the long-term effects of inflation. Help her by answering the following related questions:
A. Explain the effect of long-term inflation on meeting retirement financial planning goals.
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B. If long-term inflation is expected to average 4 percent per year and you expect a long-term investment return of 9 percent per year, what is Lillian's long-term expected real rate of return (adjusted for inflation)? Be sure to consider the important impact of compounding.
_________%
Lillian Coleman is 21 years old and has just graduated from college. In considering the retirement investing options available at her new job, she is thinking about the long-term effects of inflation. Help her by answering the following related questions:
If long-term inflation is expected to average 4 percent per year and you expect a long-term investment return of 6 percent per year, what is Lillian's long-term expected real rate of return (adjusted for inflation)? Be sure to consider the important impact of compounding.
_____________________%
FUTURE VALUE OF AN ANNUITY Your client is 40 years old; and she wants to begin saving for retirement, with the first payment to come one year from now. She can save $5,000 per year; and you advise her to invest it in the stock market, which you expect to provide an average return of 9% in the future.
How much will she have at 70?
Chapter 2 Solutions
Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)
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- As a small financial analyst, you have been selected by a client to provide assistance in thefollowing cases: A. Explain why the Future Value of an annuity due is always greater than the Future Valueof an ordinary annuity with the same rate of return and the same amount of periods.B. Marcia is planning to buy a car in five years’ time. She estimates that the car would cost$2,500,000.000. Given that the existing interest rate is 12 %, how much money shouldshe invest now? C. Marcia has an option to invest in an insurance policy at a rate of 20 % to achieve her goalof purchasing the car for $ 2,500,000. How much should she invest at the beginning ofeach year for the next 5 years in order to achieve her goal? D. If the interest rate decreases from 20% to 15%, by how much would Marcia’s annualinvestment in part C. change?arrow_forwardBeing preoccupied with your retirement income, you start planning to save money for retirement over the next 20 years. You plan to invest in two investment vehicles: stocks and bonds. You will thus invest $600 i month in the stock account and $300 a month in the bond account (your monthly investment would thus be used to purchase stocks and bonds for $600 and 5300 respectively). The stock account is expected earn 12% per year (corresponding to a monthly rate of 12%/12 per month), and the bond account is expected to cour 1% per year (corresponding to a monthly rate of 8%/12 per month. When you retire, you will combine your money into an account with a 6 percent return per year (corresponding to a monthly rate of 6%/12 per a) What is the value of the stock account 20 years from now? b) What is the value of the bond account 20 years from now? c) What is value of the combined stock and bond accounts 20 years from now? d) How much can you withdraw each month from your account after…arrow_forwardIn wisely planning for your retirement, you invest $12,000 per year for 20 years into a 401-k investment account. (a) How much can you withdraw each year for 10 years, starting 1 year after your last deposit, if you want a real return of 10% per year when the inflation rate averages 2.8% per year? (b) For a spreadsheet function challenge, write a single-cell function that displays the correct 10-year annual withdrawal amount directly.arrow_forward
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