Edward wishes to save enough money to purchase a retirement lake cabin. He is wi

Question

Edward wishes to save enough money to purchase a retirement lake cabin. He is willing to spend $500,000 for the cabin and he can save $25,000 per year and invest the money into an account earning 8.00% per year. If Edward's investments come in the form of equal annual end-of-the-year cash flows and the first cash flow is in exactly one year, how long will it take him to save enough money to buy the lake cabin?    Answer                      

                            
           Between 8 and 9 years.                             
           Between 10 and 11 years.                             
           Between 12 and 13 years.                             
           Exactly 20 years.

An investment advisor has recommended a $70,000 portfolio containing assets R, J, and K; $25,000 will be invested in asset R, with an expected annual return of 12 percent; $10,000 will be invested in asset J, with an expected annual return of 18 percent; and $15,000 will be invested in asset K, with an expected annual return of 8 percent. The expected annual return of this portfolio is Answer            

   12.67%                             
           12.00%                             
           10.00%








                                       
Please show how did you solve this

Explanation / Answer

500000= 25000FVIFA(8%,n)

20 = FVIFA(8%,n)

FVIFA(8%,12)= 18.9771

FVIFA(8%,13)=21.4953

Therefore the correct answer is Between 12 and 13 years.

(25,000/50000x12)+(10,000/50000x18)+(15,000/50000 x8)= 12.00%

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