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 $1,050 a month in a stock account in real dollars and $530 per month in a bond account in real dollars. The effective annual return of the stock account is expected to be 10 percent, and the bond account will earn 6 percent. When you retire, you will combine your money into an account with an effective annual return of 8 percent. The inflation rate over this period is expected to be an effective annual rate of 3 percent.

How much can you withdraw each month from your account in real terms assuming a withdrawal period of 25 years? Monthly withdrawal =$

What is the nominal dollar amount of your last withdrawal? Last withdrawal =$

Explanation / Answer

D L O future value of annuity: Fisher equation to calculate the real rate : (1+R)= (1+r)(1+h) 10%= 0.067961 6%= 0.029126 calculation: 8%= 0.048544 stock account FVA = $1,230,610.813 FV(L2/12,360,-1050) bond account FVA = $304,269.488 Total $1,534,880.301 (amt accumulated at retirement) monthly withdrawal = $8,843.01 PMT(O3/12,25*12,-D7) nominal dollar amount of last withdrawal $44,941.48 FV(0.03,30+25,,-D10)

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