Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
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Chapter 2, Problem 34PS
Summary Introduction
To determine: The number of years.
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Dear Financial Adviser,
My spouse and I are each 62 and hope to retire in three years. After retirement we will receive $8,500 per month after taxes from our employers’ pension plans and $2,500 per month after taxes from Social Security. Unfortunately our monthly living expenses are $16,000. Our social obligations preclude further economies.
We have $1,100,000 invested in a high-grade, tax-free municipal-bond mutual fund. The return on the fund is 3.0% per year. We plan to make annual withdrawals from the mutual fund to cover the difference between our pension and Social Security income and our living expenses. How many years before we run out of money?
Sincerely,
Luxury Challenged
Marblehead, MA
You can assume that the withdrawals (one per year) will sit in a checking account (no interest) until spent. The couple will use the account to cover the monthly shortfalls.
How many years before Luxury Challenged runs out of money? (Do not round intermediate calculations. Round…
Dear Financial Adviser,
My spouse and I are each 62 and hope to retire in three years. After retirement we will receive $7,600 per month after taxes from our
employers' pension plans and $1,600 per month after taxes from Social Security. Unfortunately our monthly living expenses are
$15,100. Our social obligations preclude further economies.
We have $1,010,000 invested in a high-grade, tax-free municipal-bond mutual fund. The return on the fund is 4.0% per year. We plan to
make annual withdrawals from the mutual fund to cover the difference between our pension and Social Security income and our living
expenses.
Sincerely,
Luxury Challenged
Marblehead, MA
You can assume that the withdrawals (one per year) will sit in a checking account (no interest) until spent. The couple will use the
account to cover the monthly shortfalls.
How many years before Luxury Challenged runs out of money?
Note: Do not round intermediate calculations. Round your answer to 2 decimal places.
Number of years
Dear Financial Adviser,
My spouse and I are each 62 and hope to retire in 3 years. After retirement we will receive $5,000 per month after taxes from our employers’ pension plans and $1,000 per month after taxes from Social Security. Unfortunately our monthly living expenses are $15,000. Our social obligations preclude further economies. We have $1,200,000 invested in a high-grade, municipal-bond mutual fund. However, the fund's annual after-tax return has dropped to 3.5%. We plan to make annual withdrawals from the mutual fund to cover the difference between our pension and Social Security income and our living expenses. How long will our money last?
Sincerely, Luxury Challenged
Marblehead, MA
You can assume that the withdrawals (one per year) will sit in a checking account (no interest) until spent. The couple will use the account to cover the monthly shortfalls.
How many years before Luxury Challenged runs out of money? (Do not round intermediate calculations. Round your answer to 2…
Chapter 2 Solutions
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 2 - (FV) In 1880, five aboriginal trackers were each...Ch. 2 - Prob. 2SQCh. 2 - (PV) Your company can lease a truck for 10,000 a...Ch. 2 - (RATE) Ford Motor stock was one of the victims of...Ch. 2 - Prob. 5SQCh. 2 - Prob. 6SQCh. 2 - Prob. 8SQCh. 2 - (NOMINAL) What monthly compounded interest rate...Ch. 2 - Future values If you invest 100 at an interest...Ch. 2 - Discount factors If the PV of 139 is 125, what is...
Ch. 2 - Prob. 3PSCh. 2 - Prob. 4PSCh. 2 - Opportunity cost of capital Which of the following...Ch. 2 - Perpetuities An investment costs 1,548 and pays...Ch. 2 - Growing perpetuities A common stock will pay a...Ch. 2 - Prob. 8PSCh. 2 - Present values What is the PV of 100 received in:...Ch. 2 - Continuous compounding The continuously compounded...Ch. 2 - Compounding intervals You are quoted an interest...Ch. 2 - Future values and annuities a. The cost of a new...Ch. 2 - Prob. 13PSCh. 2 - Present values A factory costs 800,000. You reckon...Ch. 2 - Present values A machine costs 380,000 and is...Ch. 2 - Opportunity cost of capital Explain why we refer...Ch. 2 - Present values A factory costs 400,000. It will...Ch. 2 - Present values and opportunity cost of capital...Ch. 2 - Prob. 19PSCh. 2 - Prob. 20PSCh. 2 - Annuities David and Helen Zhang are saving to buy...Ch. 2 - Annuities Kangaroo Autos is offering free credit...Ch. 2 - Present values Recalculate the NPV of the office...Ch. 2 - Prob. 24PSCh. 2 - Prob. 25PSCh. 2 - Continuous compounding How much will you have at...Ch. 2 - Perpetuities You have just read an advertisement...Ch. 2 - Compounding intervals Which would you prefer? a....Ch. 2 - Compounding intervals A leasing contract calls for...Ch. 2 - Annuities Several years ago, The Wall Street...Ch. 2 - Prob. 31PSCh. 2 - Prob. 32PSCh. 2 - Prob. 33PSCh. 2 - Prob. 34PSCh. 2 - Prob. 35PSCh. 2 - Amortizing loans Suppose that you take out a...Ch. 2 - Prob. 37PSCh. 2 - Annuities Use Excel to construct your own set of...Ch. 2 - Declining perpetuities and annuities You own an...
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