Reference no: EM133040390
Question - You would like to have $300,000 saving to retire in 25 years and considering an investment strategy with two phases:
Phase 1: Contributing an identical amount of money into an investment plan at the end of each year, given the rate of return of 12% to get a total saving of $200,000 after 15 years.
Phase 2: Investing that $200,000 accumulate in the first 15 years as a lump sum in an investment in the securities market for the left 10 years. Your financial adviser recommends two alternative options: Option A pays interest rate of 12.88%, compounding weekly. Option B pays interest rate of 13%, compounding annually.
Required -
Calculate the identical amount of money you should contribute at the end of each year in Phase 1.
In phase 1, if you contribute the same amount, but at the beginning of each year, how much would you get from this investment after 15 years?
Identify which option should you choose in Phase 2 by computing the effective annual interest rate (EAR)?
Calculate the amount of money you would accumulate in Phase 2 after 10 years if you choose Option A?
If you would like to have exactly $800,000 after the last 10 years, how much the investment rate of return (compounding annually) of that period should be?