Assume that you are 21 and that you will retire in 50 years at age 70. Assume two different saving scenarios. You will put the money in a stock market index fund where we assume you will get a fixed rate of return of 7% per year. In the first scenario you save $1200 per year ($100 per month) for ten years, from age 21 to age 30, and nothing after that. In the second, you don’t save anything during the first ten years, and then, for the next forty years from age 31 to 70, you save $1200 per year. In the first scenario you will save a total of $12,000 in all. In the second scenario you save a total of $48,000. At the end of the 50 years, which scenario will give you the highest balance? Use Excel to calculate your balance each year and the total after the 50 years. What is your conclusion? Are you surprised?
Assume that you are 21 and that you will retire in 50 years at age 70. Assume two different saving scenarios. You will put the money in a stock market index fund where we assume you will get a fixed rate of return of 7% per year. In the first scenario you save $1200 per year ($100 per month) for ten years, from age 21 to age 30, and nothing after that. In the second, you don’t save anything during the first ten years, and then, for the next forty years from age 31 to 70, you save $1200 per year. In the first scenario you will save a total of $12,000 in all. In the second scenario you save a total of $48,000. At the end of the 50 years, which scenario will give you the highest balance? Use Excel to calculate your balance each year and the total after the 50 years. What is your conclusion? Are you surprised?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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- Assume that you are 21 and that you will retire in 50 years at age 70. Assume two different saving scenarios. You will put the money in a stock market index fund where we assume you will get a fixed
rate of return of 7% per year. In the first scenario you save $1200 per year ($100 per month) for ten years, from age 21 to age 30, and nothing after that. In the second, you don’t save anything during the first ten years, and then, for the next forty years from age 31 to 70, you save $1200 per year. In the first scenario you will save a total of $12,000 in all. In the second scenario you save a total of $48,000. At the end of the 50 years, which scenario will give you the highest balance? Use Excel to calculate your balance each year and the total after the 50 years. What is your conclusion? Are you surprised?
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