32,898 Without considering the random variability in growth rates, extend the wo
ID: 3020044 • Letter: 3
Question
32,898
Without considering the random variability in growth rates, extend the worksheet in Figures 16.18 to 30 years. Confirm by using the constant annual salary growth rate and the constant annual portfolio growth rate. Tom can expect to have a 30- year portfolio of $627,937. What would Toms annual investment rate have to increase to in order for his portfolio to reach a 30-year, $1,000,000 goal?
Incorporate the random variability of the annual salary growth rate and the annual portfolio growth rate into a simulation model. Assume that Tom is willing to use the annual investment rate that predicted a 30-year, $1,000,000 portfolio in part 1. Show how to simulate Toms 30-year financial plan. Use results from the simulation model to comment on the uncertainty associated with Tom reaching the 30-year, $1,000,000 goal. Discuss the advantages of repeating the simulation numerous times.
What recommendations do you have for employees with a current profile similar to Toms after seeing the impact of the uncertainty in the annual salary growth rate and the annual portfolio growth rate?
Assume that Tom is willing to consider working 35 years instead of 30 years. What is your assessment of this strategy if Toms goal is to have a portfolio worth $1,000,000?
Discuss how the financial planning model developed for Tom Gifford can be used as a template to develop a financial plan for any of the companys employees.
Finacncial Analysis- Portfolio Projection Age 25 Current Salary $34,000.00 Current Portfolio $14,500.00 Annual Salary Growth rate 5% Annual investment rate 4% Annual Portfolio Growth Rate 10% Begginning New Portfolio Ending Year age Portfolio Salary Investment Earnings Portfolio 1 25 14,500 34,000 1,360 1,518 17,378 2 26 17,378 35,700 1,428 1,809 20,615 3 27 20,615 37,485 1,499 2,136 24,251 4 28 24,251 39,359 1,574 2,504 28,329 5 29 28,329 41,327 1,653 2,91632,898
Explanation / Answer
What recommendations do you have for employees with a current profile similar to Toms after seeing the impact of the uncertainty in the annual salary growth rate and the annual portfolio growth rate?
increase the annual salary for the employes have a great behavior in the company, and with that recommendation we will increase the annual portfolio growth rate
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