15096 Smart Art Review Paragraph AA BBCoDDEE AABECCDDEu AABBCcDDEI subtle Refere

Question

15096 Smart Art Review Paragraph AA BBCoDDEE AABECCDDEu AABBCcDDEI subtle Refere-- Intense Refer.- Book Title List Paragraph 4. An investment offers $10,000 per year for 20 years. If an investor can earn 6 percent annually on other investments, what is the current value of this investment? If its current price is $120,000, should the investor buy it? 5. Graduating seniors may earn $45,000. If the annual rate of inflation is 2 percent, what must these graduates earn after 20 years to maintain their current purchasing power? If the rate of inflation rises to 4 percent, will they be maintaining their standard of living ifthey earn $100,000 after 20 years? 6. A person who is retiring atthe age 65 and who has $200,000 wants to leave an estate of at least $30,000. How much can the individual draw annually on the S200,000 (starting at the end of the year) ifthe funds earn 8 percent and the person's life expectancy is 85 years? 7. A40-year-old individual establishes a retirement account that is expected to earn 7 percent annually. Contributions will be $2,000 annually at the beginning of each year. Initially, the saver expects to start drawing on the account at age 60. a) How much will be in the account when the saver is age 60? b) If this investor found a riskier investment that offered 10 percent, how much in additional funds would earned? c) The investor selects the 10 percent investment and retires at the age of 60. How much can be drawn from the account at the beginning of each year if life expectancy is $5 and the funds continue to earn 10 percent?

Explanation / Answer

4. Current value = 10000*(1 - 1/1.06^20)/.06 = 114699.21

since current price is $120, 000 then net gain = 114699.21 - 120000 = - 5300 so it will give losss

5. Earning today = 45000

earning after 20 yeras @ 2% inflation = 45000*(1.02)^20 = $66867.63 required to survive after 20 years

earning after 20 yeras @ 4% inflation = 45000*(1.04)^20 = 98600.541 needed to survive

person is getting $ 100000 so he can maintain their standard of living

6. time = 25 years amount = 170000 ( after deduction of 30000)

Interest = 8%

170000 = amount * (1 - 1/1.08^25) / .08

amount = $ 15925.5

7. Annual contribution = $ 2000 time = 20 years interest = 7%

so amount at the age of 60 years = 2000*((1.07)^20 - 1) / .07 = $ 81990.98 = $ 81991

amount at the age of 60 years @ 10% interest = 2000*((1.1)^20 - 1) / .1 = $ 114550

Difference in amount = 114550 - 81991 = $ 32559

If riskier investment is selected then amount is $ 114550

if interest rate is still 10% and interst income is withdrawn

then income withdrawn is = 114550*.1 = $ 11455

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