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 wil inves a month in a stock account in real dollars and $52 annual return of the stock account is expected to be 11 percent, and the bond account will earn 7 p When you retire, you will combine your money into an account with a 9 percent effective return. The inflation rate over this period is expected to be 4 percent t $1,000 5 a month in a bond account in real dollars. The effective ercent 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 final answer to 2 decimal places. (e.g., 32.16) Monthly withdrawal What is the nominal dollar amount of your last withdrawal? (Do not round intermediate calculations and round your final answer to 2 decimal places. (eg 32 16) Last withdrawal References eBook & Resources

Explanation / Answer

Future value of investment in share at the time of retirement

Future value of investment in share at the time of retirement

Using FV function in MS excel

fv(rate,nper,pmt,pv,type) rate = 115/12 =.9166% nper = 12*30 = 360 pmt = 1000 pv =0 type = 0

FV(0.9166%,360,-1000,0,0)

$2,804,030.83

Future value of investment in bonds at the time of retirement

Future value of investment in share at the time of retirement

Using FV function in MS excel

fv(rate,nper,pmt,pv,type) rate = 115/12 =.5833% nper = 12*30 = 360 pmt = 525 pv =0 type = 0

FV(0.5833%,360,-525,0,0)

$640,434.22

total future value of investment at the time of retirement

2804030.83+640434.22

3444465

1-

Value of PMT in real term

PMT

Using PMT function in MS excel

pmt(rate,nper,pv,fv,type) rate = (9-4)/12 =.4166 nper = 25*12 = 300 PV = -3444465 fv = 0 type = 1

PMT(0.4166%,300,-3444465,0,0)

$20,134.39

2-

Value of last Nominal withdrwal

PMT

Using PMT function in MS excel

pmt(rate,nper,pv,fv,type) rate = (9)/12 =.75 nper = 25*12 = 300 PV = -3444465 fv = 0 type = 1

PMT(0.75%,300,-3444465,0,0)

$28,905.83

Future value of investment in share at the time of retirement

Future value of investment in share at the time of retirement

Using FV function in MS excel

fv(rate,nper,pmt,pv,type) rate = 115/12 =.9166% nper = 12*30 = 360 pmt = 1000 pv =0 type = 0

FV(0.9166%,360,-1000,0,0)

$2,804,030.83

Future value of investment in bonds at the time of retirement

Future value of investment in share at the time of retirement

Using FV function in MS excel

fv(rate,nper,pmt,pv,type) rate = 115/12 =.5833% nper = 12*30 = 360 pmt = 525 pv =0 type = 0

FV(0.5833%,360,-525,0,0)

$640,434.22

total future value of investment at the time of retirement

2804030.83+640434.22

3444465

1-

Value of PMT in real term

PMT

Using PMT function in MS excel

pmt(rate,nper,pv,fv,type) rate = (9-4)/12 =.4166 nper = 25*12 = 300 PV = -3444465 fv = 0 type = 1

PMT(0.4166%,300,-3444465,0,0)

$20,134.39

2-

Value of last Nominal withdrwal

PMT

Using PMT function in MS excel

pmt(rate,nper,pv,fv,type) rate = (9)/12 =.75 nper = 25*12 = 300 PV = -3444465 fv = 0 type = 1

PMT(0.75%,300,-3444465,0,0)

$28,905.83

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