Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)
8th Edition
ISBN: 9781285065137
Author: Eugene F. Brigham, Joel F. Houston
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 5, Problem 30P
a.
Summary Introduction
To calculate: Number of years taken by E and K to become millionaires, if both earn same return.
Financial Goal: Financial goal is a money based target, which a person wants to achieve at a certain age. It requires making plan for reducing debt, creating enough wealth to have at the time of retirement and reducing amount of tax.
b.
Summary Introduction
To calculate: E’s contribution to become millionaire at the same age of K.
c.
Summary Introduction
To explain: Whether it is rational or irrational for E to invest in the bond fund rather than in stocks.
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
Sarah and Mae, who are twins, just received P30,000 each for their 25th birthday. They both have aspirations to become millionaires. Each plan to make a P5,000 annual contribution to her “early retirement fund” on her birthday, beginning a year from today. Sarah opened an account with the First Bond Fund, a mutual fund that invests in high-quality bonds whose investors have earned 6% per year in the past. Mae invested in the New Issue Bio-Tech Fund, which invests in small, newly issued biotech stocks and whose investors have earned an average of 20% per year in the fund’s relatively short history.
Post your Excel file here to answer the questions below:
a. Draw a timeline of the cash flows.
b. If the two women’s funds earn the same returns in the future as in the past, how old will each be when she becomes a millionaire?
c. How large would Sarah’s annual contributions have to be for her to become a millionaire at the same age as Mae, assuming their expected returns are realized?
Allison and Leslie, who are twins, just received $10,000 each for their 25th birthday. They both have aspirations to become millionaires. Each plans to make a $5,000 annual contribution to her “early retirement fund” on her birthday, beginning a year from today. Allison opened an account with the Safety First Bond Fund, a mutual fund that invests in high-quality bonds whose investors have earned 8% per year in the past. Leslie invested in the New Issue Bio-Tech Fund, which invests in small, newly issued bio-tech stocks and whose investors have earned an average of 13% per year in the fund’s relatively short history.
If the two women’s funds earn the same returns in the future as in the past, how old will each be when she becomes a millionaire?
How large would Allison’s annual contributions have to be for her to become a millionaire at the same age as Leslie, assuming their expected returns are realized?
Is it rational or irrational for Allison to invest in the bond fund rather than in…
Allison and Leslie, who are twins, just received $15,000 each for their 21th birthday. They both have aspirations to become millionaires. Each plans to make a $5,000 annual contribution to her "early retirement fund" on her birthday, beginning a year from today. Allison opened an account with the Safety First Bond Fund, a mutual fund that invests in high-quality bonds whose investors have earned 6% per year in the past. Leslie invested in the New Issue Bio-Tech Fund, which invests in small, newly issued bio-tech stocks and whose investors have earned an average of 12% per year in the fund's relatively short history.
If the two women’s funds earn the same returns in the future as in the past, how old will each be when she becomes a millionaire? Do not round intermediate calculations. Round your answers to two decimal places.Allison: yearsLeslie: years
How large would Allison's annual contributions have to be for her to become a millionaire at the same age as Leslie, assuming their…
Chapter 5 Solutions
Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)
Ch. 5 - Prob. 1QCh. 5 - Explain whether the following statement is true or...Ch. 5 - If a firms earnings per share grew from 1 to 2...Ch. 5 - Would you rather have a savings account that pays...Ch. 5 - Prob. 5QCh. 5 - Prob. 6QCh. 5 - Banks and other lenders are required to disclose a...Ch. 5 - Prob. 8QCh. 5 - Prob. 1PCh. 5 - Prob. 2P
Ch. 5 - FINDING THE REQUIRED INTEREST RATE Your parents...Ch. 5 - TIME FOR A LUMP SUM TO DOUBLE If you deposit money...Ch. 5 - TIME TO REACH A FINANCIAL GOAL You have 42,180.53...Ch. 5 - Prob. 6PCh. 5 - Prob. 7PCh. 5 - LOAN AMORTIZATION AND EAR You want to buy a car....Ch. 5 - Prob. 9PCh. 5 - Prob. 10PCh. 5 - GROWTH RATES Shalit Corporations 2013 sales were...Ch. 5 - EFFECTIVE RATE OF INTEREST Find the interest rates...Ch. 5 - Prob. 13PCh. 5 - Prob. 14PCh. 5 - Prob. 15PCh. 5 - Prob. 16PCh. 5 - EFFECTIVE INTEREST RATE You borrow 85,000; the...Ch. 5 - Prob. 18PCh. 5 - FUTURE VALUE OF AN ANNUITY Your client is 40 years...Ch. 5 - PV OF A CASH FLOW STREAM A rookie quarterback is...Ch. 5 - Prob. 21PCh. 5 - LOAN AMORTIZATION Jan sold her house on December...Ch. 5 - Prob. 23PCh. 5 - Prob. 24PCh. 5 - Prob. 25PCh. 5 - PV AND LOAN ELIGIBILITY You have saved 4,000 for a...Ch. 5 - EFFECTIVE VERSUS NOMINAL INTEREST RATES Bank A...Ch. 5 - NOMINAL INTEREST RATE AND EXTENDING CREDIT As a...Ch. 5 - BUILDING CREDIT COST INTO PRICES Your firm sells...Ch. 5 - Prob. 30PCh. 5 - REQUIRED LUMP SUM PAYMENT Starting next year, you...Ch. 5 - REACHING A FINANCIAL GOAL Six years from today you...Ch. 5 - FV OF UNEVEN CASH FLOW You want to buy a house...Ch. 5 - AMORTIZATION SCHEDULE a. Set up an amortization...Ch. 5 - Prob. 35PCh. 5 - Prob. 36PCh. 5 - Prob. 37PCh. 5 - Prob. 38PCh. 5 - Prob. 39PCh. 5 - REQUIRED ANNUITY PAYMENTS A father is now planning...Ch. 5 - Prob. 41SPCh. 5 - Prob. 42IC
Knowledge Booster
Similar questions
- Determining the right amount of short-term, liquid investments. Ella and Aaron Martin together earn approximately 92,000 a year after taxes. Through an inheritance and some wise investing, they also have an investment portfolio with a value of almost 200,000. a. How much of their annual income do you recommend the Martins hold in some form of liquid savings as reserves? Explain. b. How much of their investment portfolio do you recommend they hold in savings and other short-term investment vehicles? Explain. c. How much, in total, should they hold in short-term liquid assets?arrow_forwardAllison and Leslie, who are twins, just received $20,000 each for their 24th birthday. They both have aspirations to become millionaires. Each plans to make a $5,000 annual contribution to her "early retirement fund" on her birthday, beginning a year from today. Allison opened an account with the Safety First Bond Fund, a mutual fund that invests in high-quality bonds whose investors have earned 8% per year in the past. Leslie invested in the New Issue Bio-Tech Fund, which invests in small, newly issued bio-tech stocks and whose investors have earned an average of 19% per year in the fund's relatively short history. If the two women’s funds earn the same returns in the future as in the past, how old will each be when she becomes a millionaire? Do not round intermediate calculations. Round your answers to two decimal places. Allison: years Leslie: years How large would Allison's annual contributions have to be for her to become a millionaire at the same age as Leslie,…arrow_forwardAllison and Leslie, who are twins, just received $20,000 each for their 27th birthdays. They both have aspirations to become millionaires. Each plans to make a $5,000 annual contribution to her "early retirement fund" on her birthday, beginning a year from today. Allison opened an account with the Safety First Bond Fund, a mutual fund that invests in high-quality bonds whose investors have earned 7% per year in the past. Leslie invested in the New Issue Bio-Tech Fund, which invests in small, newly issued bio-tech stocks and whose investors have earned an average of 17% per year in the fund's relatively short history. A. If Allison's fund earns the same returns in the future as in the past, how old will she be when she becomes a millionaire? Do not round intermediate calculations. Round your answer to two decimal places. B. If Leslie's fund earns the same returns in the future as in the past, how old will she be when she becomes a millionaire? Do not round intermediate calculations.…arrow_forward
- Erika and Kitty, who are twins, just received $30,000 each for their 20th birthday. Theyboth have aspirations to become millionaires. Each plans to make a $5,000 annualcontribution to her “early retirement fund” on her birthday, beginning a year from today.Erika opened an account with the Safety First Bond Fund, a mutual fund that invests inhigh-quality bonds whose investors have earned 7% per year in the past. Kitty investedin the New Issue Bio-Tech Fund, which invests in small, newly issued bio-tech stocks andwhose investors have earned an average of 20% per year in the fund’s relatively shorthistory.a. If the two women’s funds earn the same returns in the future as in the past,how old will each be when she becomes a millionaire?b. How large would Erika’s annual contributions have to be for her to becomemillionaire at the same age as Kitty, assuming their expected returns arerealized?c. Is it rational or irrational for Erika to invest in the bond fund rather than instocks?arrow_forwardErika and Kitty, who are twins, have just received $30,000 each for their 25th Each sister plans to make a $5,000 annual contribution to her retirement fund on her birthday, beginning a year from today. Erika opened an account with a fund that provides a 6% return per year. Kitty invested in fund that provides a 20% return per year. How old will each sister be when she becomes a millionaire? How large should Erika’s annual contributions have to be for her to become a millionaire at the same age as Kitty?arrow_forwardBella is 23 years old and wants to invest money for her retirement. She wants to have $2,000,000 saved up when she retires at age 65. A) If she can earn 10% per year in an equity mutual fund, calculate the amount of money she would have to invest in equal annual amounts to achieve her retirement goal. B) Alteratively, how much would she have to invest in equal monthly amounts starting at the end of the current year or monthly respectively. please show work in excel as that is what i am not understanding mostlyarrow_forward
arrow_back_ios
arrow_forward_ios
Recommended textbooks for you
- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
- Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Cornerstones of Cost Management (Cornerstones Ser...
Accounting
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Cengage Learning