You are planning to save for retirement over the next 15 years. To do this, you

Question

You are planning to save for retirement over the next 15 years. To do this, you will invest $1,000 a month in a stock account and $600 a month in a bond account. The return of the stock account is expected to be 7 percent, and the bond account will pay 4 percent. When you retire, you will combine your money into an account with an 6 percent return. Assuming a 20-year withdrawal period, you can withdraw______each month form your account- 2.) Youre prepared to make monthly payments of $90, beginning at the end of this month, into an account that pays 8 percent interest compounded monthly. When your account balance reaches $12,048 you will have made_______ payments

Explanation / Answer

Soln :

A) Return from the stock

f = 1000(1+0.07) 15 = $ 2,579.03

Returns from the bond

f = 600(1+.04) 15 = $ 1,080.56

Total money combined = $ 2,579.03 + $ 1,080.56 = $ 3,659.59

Combined money invested into an account with 6 % return with a 20 year withdrawl period

f = $ 3,659.59 ( 1+0.06) 20 = $ 11,736.80

Every month it is possible to withdraw $ 48.90

B) $12,048 = $90 ( 1+ 0.08/12) n

$12,048 =  $90 ( 1.006)n

( 1.006)n =    $12,048 /  $90

( 1.006)n = 133.86

n log 1.006 = log 133.86

n = 6.70 years

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