Reference no: EM131025528
How much will your portfolio be worth in 10 years? In 20 years? When you stop working? The Human Resource department at EcoCarnifex Corporation was asked to develop a financial planning model that would help employees address these questions. Frank Joseph was asked to lead this effort and decided to begin by developing a financial plan for himself. Frank has a degree in business and at the age of 25, is making $34,000 per year. After 2 years of contribution to the company retirement plan and receiving a small inheritance, Frank has accumulated a portfolio valued at $14,500. Frank plans to work for 30 more years and hopes to accumulate a portfolio valued at $1,000,000. Can he do it?
Assumptions:
1. 5% salary growth is reasonable.
2. He plans to contribute 4% of his salary.
3. 10% annual portfolio growth seems reasonable.
4. Contributions occur monthly throughout the year.
Develop an Excel worksheet and calculate the value at the end of 5 years. Frank projected he could save around $691,500 after 30 more years of service. What would Frank’s alternatives be if he wants to make $1,000,000? Frank showed this to his boss who made the following observations.
1. Salary growth should not be constant. Should vary from 0 to 10 percent with a uniform probability distribution.
2. Annual portfolio growth rate should be approximated by a normal probability distribution with a mean of 10% and a standard deviation of 5%
Develop an Excel worksheet with this new information.
Frank is willing to work 5 more years. What is the result of that decision?
Use @Risk to perform these simulations.
|
Price and earnings ratio remains at its current level
: Dean Brothers Inc. recently reported net income of $1,500,000. The company has 300,000 shares of common stock, which currently trade at $60 a share. Assuming the company's price/earnings ratio remains at its current level, what will be the company's ..
|
|
Bond with coupon rate-pays interest semiannually
: A bond with a coupon rate of 6 percent that pays interest semiannually and is priced at par will have a market price of _____ and interest payments in the amount of _____ each.
|
|
The bond pays its coupons annually
: Find the convexity of a seven-year maturity, 6% coupon bond selling at a yield to maturity of 8%. The bond pays its coupons annually. (Hint: You can use the spreadsheet from this chapter’s Excel Application on Convexity, setting cash flows after year..
|
|
Face value bond-what is the bonds yield to call
: A 12-year, $1,000 face value bond pays a 9% annual coupon and has a yield to maturity of 7.5%. The bond can first be called four years from now, at a call price What is the bond's yield to call?of $1,050. What is the bond's yield to call?
|
|
Decided to begin by developing a financial plan for himself
: How much will your portfolio be worth in 10 years? In 20 years? When you stop working? The Human Resource department at EcoCarnifex Corporation was asked to develop a financial planning model that would help employees address these questions. Frank J..
|
|
What is the value three years from now
: A 4-year annuity of eight $6,600 semiannual payments will begin 9 years from now, with the first payment coming 9.5 years from now. If the discount rate is 10 percent compounded monthly, what is the value of this annuity five years from now? If the d..
|
|
Calculate consumer surplus and the dead-weight loss
: Draw the Supply and the Demand curves and find the equilibrium price and quantity. Calculate consumer surplus, producer surplus, and the dead-weight loss. Name three changes that would cause the demand curve to shift in this market
|
|
Fixed costs increase before accounting profits turn negative
: A project currently generates sales of $10 million, variable costs equal to 50% of sales, and fixed costs of $2.1 million. The firm’s tax rate is 40%. The project will last for 10 years. The discount rate is 11%. What is the effect on project NPV, if..
|
|
What recent evidence about the performance of medical homes
: What recent evidence about the performance of medical homes can you find? What recent evidence about bundled payment programs can you find? What recent evidence about Medicare Advantage HMOs can you find? What recent evidence about the performance of..
|