Reference no: EM131020203
Sandy plans to retire in 22 years with a nest egg of $8M. She has already saved $500,000 in an investment account that generates a nominal rate of return of 12%, compounded quarterly. However, she needs to withdraw $150,000 from this account in 10 years to finance her daughter’s college education.
(a) Numerically show that whether Sandy’s investment account balance will reach $8M in 22 years, based on the information provided above.
(b) The correct answer for part (a) indicates that Sandy’s investment account will fall short of her retirement goal of $8M in 22 years. Thus, she continues her pursuit by making additional fixed contributions at the end of every quarter to the same investment account until she retires 22 years later. How big should be her quarterly contribution in order to achieve her goal?
(c) Assume now that Sandy retires and has $8M in her investment account. If she wants to leave $10M to each of her two children upon her death after enjoying 25 years of retirement. What is the maximum annual withdrawal from the investment account Sandy can make at the beginning of every year during her retirement?
PS: The answer to the questions was provided by the instructor, i need a detailed solution of how to arrive at the answers provided.
|
According to relative purchasing power parity
: According to relative purchasing power parity, if the inflation rate in Italy was 8% and the inflation rate in Israel was 6%,
|
|
Forward transactions
: Forward transactions
|
|
Semiannual coupon payments and yield to maturity
: Wine & Rose Inc. offers a 6 percent coupon bond that has a $1,000 par value, semiannual coupon payments and a yield to maturity of 5.43 percent. The bond matures in 9 years. What is the price of the bond? What will happen to the price if market inter..
|
|
What is the actual rate you are paying on this loan
: You are looking at a one-year loan of $15,000. The interest rate is quoted as 10 percent plus 5 points. A point on a loan is simply 1 percent (one percentage point) of the loan amount. Quotes similar to this one are very common with home mortgages. T..
|
|
What is maximum annual withdrawal from investment account
: Sandy plans to retire in 22 years with a nest egg of $8M. She has already saved $500,000 in an investment account that generates a nominal rate of return of 12%, compounded quarterly. What is the maximum annual withdrawal from the investment account ..
|
|
What is the weighted average cost of capital
: The Black Bird Company plans an expansion. The expansion is to be financed by selling $56 million in new debt and $116 million in new common stock. The before-tax required rate of return on debt is 6.09% percent and the required rate of return on equ..
|
|
Preferred stock and common stocks outstanding
: Garden Tools Inc. has bonds, preferred stock, and common stocks outstanding. The number of securities outstanding, the current market price, and the required rate of return for these securities are stated in the table below. The firm’s tax rate is 35..
|
|
Create spreadsheet to calculate how much a deposit
: Create a spreadsheet to calculate how much a deposit of $1,000 would be worth if left in a bank for ten years at 6.5 percent annual interest. Show principal and interest for each year as follows: Annual Interest Rate: .065 YEAR PRINCIPAL INTEREST 1 $..
|
|
What is the average daily cash balance
: The Smythe firm expects a total cash need of $9,000 over the next 4 months. The have a begin inning cash balance of $1,000 and cash is replenished when it hits zero. The fixed cost of selling securities to replenish cash balances is $4.00. The intere..
|