Access over 20 million homework & study documents

search

William is an industrious lawyer After working in the legal field fo

Content type
User Generated
Rating
Showing Page:
1/3
William is an industrious lawyer. After working in the legal
field for more than 40 years, he is now planning for
retirement in ten years\' time. Currently, William has
$2,000,000 in a savirgs account with Open Bank and some
mutual fund ircvestnents worth $1,400,000 with Jubilee
Assets management. He intends to increase his retirement
savings by depositing $8,000 at the end of every month in
his savings account for the next five years and increasing
the amount up to $12,000 per month for the final fire jears
until retirement. The savings account provides a 3% p.a.
monthly compounded interest rate to William, while the
mutual fund investments are expected to offer a 9% annual
return to him. William believes he will lire 20 years more
after he retires. Once he has retired, he will put all his
wealth into another savings account with a 1.2% p.a.
compounded monthly interest rate. When he dies, William
would like to leare a lump sum of $5,000,000 to his
daughter Jacqueline for her living expenses. Answer tte
followirg questions: How much will William have at the end
of ten years when he retired? With $5,000,000 set aside
for his daughter upon his death, how much can William
withdraw each month during his retiremerd? Assume
William would like to withdraw $20,000 each month after
his retirement. In order to achieve this goal, he has to
transfer part of the money from his savings account to the
mutual fund investment at the beginning. How much should
William transfer?
Solution

Sign up to view the full document!

lock_open Sign Up
Showing Page:
2/3
a.
Balance in mutual fund investments= $1,400,000
Annual return from mutual fund investments = 9%
Amount in mutual fund investments after 10 years =
$1,400,000 * 1.0910 = $3,314,309.14
Amount in savings account = $2,000,000
Savings account interest rate = 3% per annum = 0.25% per
month
Value of $2,000,000 after 10 years i.e. 120 months =
$2,000,000 * 1.0025120 = $2,698,707.09
Future value of annuity = annual investment * {(1+r)n - 1}/r
Value of $8000 investments after 5 years = $8,000 *
(1.002560 1)/0.0025 = $517,173.70
Value of $517,173.70 at the end of year 10 = $517,173.70
* 1.002560 = $600,757.65
Value of $12,000 invested in final five years at the end of
year 10 = $12,000 * (1.002560 1)/0.0025 = $775,760.55
Total amount at the end of 10 years = $3,314,309.14 +
$2,698,707.09 + $600,757,.65 + $775,760.55 =
$7,389,535.13

Sign up to view the full document!

lock_open Sign Up
Showing Page:
3/3

Sign up to view the full document!

lock_open Sign Up
Unformatted Attachment Preview
William is an industrious lawyer. After working in the legal field for more than 40 years, he is now planning for retirement in ten years\' time. Currently, William has $2,000,000 in a savirgs account with Open Bank and some mutual fund ircvestnents worth $1,400,000 with Jubilee Assets management. He intends to increase his retirement savings by depositing $8,000 at the end of every month in his savings account for the next five years and increasing the amount up to $12,000 per month for the final fire je ars until retirement. The savings account provides a 3% p.a. monthly compounded interest rate to William, while the mutual fund investments are expected to offer a 9% annual return to him. William believes he will lire 20 years more after he retires. Once he has retired, he will put all his wealth into another savings account with a 1.2% p.a. compounded monthly interest rate. When he di ...
Purchase document to see full attachment
User generated content is uploaded by users for the purposes of learning and should be used following Studypool's honor code & terms of service.

Anonymous
Great! 10/10 would recommend using Studypool to help you study.

Studypool
4.7
Trustpilot
4.5
Sitejabber
4.4