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How large would jana annual contributions have to be

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Reference no: EM132678220

Twin sisters, Jana and Kara, just received $26,500 each for their 26th birthday. They will use this money to start their retirement plans.

  • They both hope to retire with one million dollars. Each plans to make a $9,500 annual contribution to her "early retirement fund" on all her future birthdays, beginning one year from today.
  • Jana opened an account with the Conservative Bond Fund, a mutual fund that invests in high-quality bonds whose investors have earned 5.8% per year in the past.
  • Kara invested in the Aggressive Growth Fund, which invests in small, bio-tech stocks and whose investors have earned an average of 12.65% per year in the fund's short history.

Problem 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?

Problem b) How large would Jana's annual contributions have to be for her to become a millionaire at the same age as Kara, assuming their expected returns are realized?

Problem c) Is it rational or irrational for Jana to invest in the bond fund rather than in stocks?

Reference no: EM132678220

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