Question 10 Steve Colonnello has just graduated from college and found a job imm

Question

Question 10 Steve Colonnello has just graduated from college and found a job immediately, Steve decides to start saving money for retirement immediately by opening up a Roth lRA Account at Fidelity Investments. He is a well-educated and active market participant and always invests in high Beta Stock (with Beta of at least 1.4) His Required Rates of return R, is typically 12% or higher He invests $1.500 a year for the first 10 years, then invest $3.500 a year for the following 10 years. He expects 14% average rate of return for the entire 20 years. How much Steve can expect his account to be after 20 years? YOU MUST SHOW YOUR CALCULATIONS:

Explanation / Answer

Beta = 1.4

Required rate of return = 12%.

Amount investmented is $1,500 a year for the first 10 years, later invest $3,500 for the next 10 years.

Expected rate of return =14%. is the rate that needs to be considered for calculation of maturity amount after 20 years.

Steve can expect $199,741.66 in his account after 20 years.

Year Amount invested every year Interest Amount at the end of the year 1 $1,500.00 $210.00 $1,710.00 2 $1,500.00 $449.40 $3,659.40 3 $1,500.00 $722.32 $5,881.72 4 $1,500.00 $1,033.44 $8,415.16 5 $1,500.00 $1,388.12 $11,303.28 6 $1,500.00 $1,792.46 $14,595.74 7 $1,500.00 $2,253.40 $18,349.14 8 $1,500.00 $2,778.88 $22,628.02 9 $1,500.00 $3,377.92 $27,505.94 10 $1,500.00 $4,060.83 $33,066.77 11 $3,500.00 $5,119.35 $41,686.12 12 $3,500.00 $6,326.06 $51,512.18 13 $3,500.00 $7,701.71 $62,713.89 14 $3,500.00 $9,269.94 $75,483.83 15 $3,500.00 $11,057.74 $90,041.57 16 $3,500.00 $13,095.82 $106,637.38 17 $3,500.00 $15,419.23 $125,556.62 18 $3,500.00 $18,067.93 $147,124.55 19 $3,500.00 $21,087.44 $171,711.98 20 $3,500.00 $24,529.68 $199,741.66

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