An investment heavy in stocks produces the best results

Assignment Help Accounting Basics

Reference no: EM131106759

The simulation output from Example 11.7 indicates that an investment heavy in stocks produces the best results. Would it be better to invest entirely in stocks? Answer this by rerunning the simulation. Is there any apparent downside to this strategy?

Example 11.7

Attorney Sally Evans has just begun her career. At age 25, she has 40 years until retirement, but she realizes that now is the time to start investing. She plans to invest $1000 at the beginning of each of the next 40 years. Each year, she plans to put fixed percentages-the same each year-of this $1000 into stocks, Treasury bonds (T-bonds), and Treasury bills (T-bills). However, she is not sure which percentages to use. (We call these percentages investment weights.) She does have historical annual returns from stocks, T-bonds, and T-bills from 1946 to 2007. These are listed in the file Retirement Planning.xlsx. This file also includes inflation rates for these years. For example, for 1993 the annual returns for stocks, T-bonds, and T-bills were 9.99%, 18.24%, and 2.90%, respectively, and the inflation rate was 2.75%. Sally would like to use simulation to help decide what investment weights to use, with the objective of achieving a large investment value, in today's dollars, at the end of 40 years.

Objective To use simulation to estimate the value of Sally's future investments, in today's dollars, from several investment strategies in T-bills, T-bonds, and stocks.

Reference no: EM131106759

Questions Cloud

Justify the statement that the sample mean may be calculated : Justify the statement that the sample mean of Eq. (12.40) may be calculated from the iterative formula of Eq. (12.42).

Prepare journal entries to record each transaction : Prepare journal entries to record each transaction. Determine accrued interest as of December 31, 20XX, and prepare the necessary adjusting entry or entries.

Board of directors-and a representative of its shareholder : Let's say that you're a member of Boeing's board of directors-and thus a representative of its shareholders. Boeing's stock price stood at $60 at the beginning of 2009 (down from a high of $105 a little more than year earlier).

Difference between one-way and one-way communication : What is the difference between one-way and one-way communication, and which is a more effective means of interaction

An investment heavy in stocks produces the best results : The simulation output from Example 11.7 indicates that an investment heavy in stocks produces the best results. Would it be better to invest entirely in stocks? Answer this by rerunning the simulation. Is there any apparent downside to this strat..

Summerize key components in audience analysis : Based on the article linked below summerize key components in audience analysis and identify how you might apply then to your persuasion project http://publicspeakingproject.org/PDF%20Files/aud%20analy%20web%201.pdf

What would be the dollar profit : How much in dollars does it cost Yohe to produce the SY-20? What is the dollar sale price of the SY-20?b. What is the dollar profit that Yohe makes on the sale of the SY-20? What is the percentage profit? If the U.S. dollar was to weaken by 10% again..

Construct a signal-flow graph representation of the td : The TD(0) algorithm has a mathematical composition similar to that of the LMS algorithm described in Chapter 3. Discuss the similarities and differences between these two algorithms.

Compute the pro-forma income statement and balance sheet : A company published the following information in its financial statements for its 2015 annual report: Prepare the pro-forma 2016 income statement, balance sheet, and statement of cash flows.

User Account

All Pages