Reference no: EM133130304

Questions -

Q1: If you invested $800 today and expected consistent 9% annual returns (consistent with the 20-year average for the S&P Index from 2001-2020, including dividends), how much will it be worth when you retire 40 years from yesterday (hint: 40 years after the initial one-time investment)?

Q2: Now, you're thinking about taxes when you withdraw that money. Assuming the value you just calculated of what that $800 you invested today with expected 9% returns will be in 40 years, how much will it be if you withdraw all of that money at an ordinary tax rate of 28%?

Q3: Now, you decide you're going to save $800/year every year for 40 years until you retire. You begin investing your $800 on the first day of the year. Assuming 9% annual returns, how much will you have at retirement in 40 years?

Q4: What if you make that same investment from Q3, but now you begin investing $800 on the last day of each year?

Q5: Of questions 3 and 4, which would you prefer (as in, which will yield the larger dollar value at retirement)?

Q6: Now, you say you want to retire with $700,000 in 40 years. You will make 40 annual contributions to do so. You make all contributions at the end of each year. Assuming 9% annual returns, how much does your annual payment need to be?

Q7: Holding everything else equal, is it smarter to invest $800 today:

1) In a bond that pays a 2.5% stated/nominal interest rate, compounded annually?

2) In a CD that pays 2.4% stated/nominal interest rate, compounded quarterly?

3) In a bank account that pays 2.49% stated/nominal interest rate, compounded daily?

Show calculations, dollar value of each alternative at the end of the year and explain the differences. The explanation counts as much as the calculations/correct choice answer.