a. If the goal is to retire in 30 years with $2 million in investments and you h

Question

a. If the goal is to retire in 30 years with $2 million in investments and you have $250,000 now, what average return must you achieve to reach your goal?

b. If your return averages 6%, what will your end result (state in $) be in 30 years?

c. What is the portfolio return of the below?

Return 2011 2012   2013

Investment    A         $5,000                        4%      4%      4%

                        B         $10,000                      6%      12%    (0%)

                        C         $5,000                        12%    14%    (2%)

Explanation / Answer

(a)

Present cash available = $250,000.

Cash to be available after 30 years = $2,000,000.

Thefore, the cash to be earned in 30 years = $2,000,000 - $250,000 = $1,750,000.

Average reurn to be earned = $1,750,000 / 30 years = $58,333.

(b)

Compute the return to be saved.

Using the excel function,

= PMT(Rate, Nper, Pv, FV)

= PMT(0.06,30,-250000,-2000000)

= $43,460.

(C)

Compute the portfolio returns.

2011 Investment Probability Return Portfolio return A 5000 0.25 0.04 0.01 B 10000 0.5 0.06 0.03 C 5000 0.25 0.12 0.03 Portfolio Return 0.07 2012 Investment Probability Return Portfolio return A 5000 0.25 0.04 0.01 B 10000 0.5 0.12 0.06 C 5000 0.25 0.14 0.035 Portfolio Return 0.105 2013 Investment Probability Return Portfolio return A 5000 0.25 0.04 0.01 B 10000 0.5 0 0 C 5000 0.25 0.02 0.005 Portfolio Return 0.015

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