You are planning to save for retirement over the next 30 years. To save for reti

Question

You are planning to save for retirement over the next 30 years. To save for retirement, you will invest $1,150 per month in a stock account in real dollars and $540 per month in a bond account in real dollars. The effective annual return of the stock account is expected to be 13 percent, and the bond account will earn 6 percent. When you retire, you will combine your money into an account with an effective return of 8 percent. The returns are stated in nominal terms. The inflation rate over this period is expected to be 3 percent.

1.How much can you withdraw each month from your account in real terms assuming a 25-year withdrawal period? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

2.What is the nominal dollar amount of your last withdrawal? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Explanation / Answer

value of investment in share after 30 years $5,029,260.25 value of investment in bond after 30 years $542,438.12 combined value of investment after 30 years $5,571,698.37 monthly amount from real rate of return of 5% $32,571.59 last withdrawl amount from nominal rate of 8% $43,003.27

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