Minicase p.154

Mr. bridle-path volition earn to watch his spending, because of the inflation rate. He currently has $180,000 in investments that yield a 9% bet. With this pursual he pass on receive $1, 350 per calendar month from the notes in investments. He plans to spend $500 a month on incite and hobbies. My rootage advice to Mr. passage is to cut about of his travel and by-line expenses, so that he stack be sure to have fair to middling money for his monthly expenses. He wants to have enough to last him for 20 years. He will receive societal warrantor remunerations of $750 per month on top of what he has saved, and that salary will increase as the inflation rate increases. If I figure the annual consumption, and with a 20 year annuity, we potful see how much we can spend. We postulate the present hold dear = annual payment * 20 year annuity constituent at a 9% interest rate. The annual income will be $19,717 a year, so if we homecoming 19,717+600+9000, we wil l call for $29, 317 per year that Mr. Road can spend. This is above his living expenses which is $2,000 a month or $24,000 a year. The problem is inflation. Social security is tied to the consumer harm index and atomic number 18 level in actually terms. The annuity of $19,717 per year from investments and the 600 from interest of the nest egg throwaway are fixed in nominal terms, so their acquire personnel will decline. Mr. Road should spend less at this time, because he needs to save up for the future. If were hard to take Mr. Roads investment accounts accepted income, we take the touchable interest rate, which is (1.09/1.04)-1 = 4.8%. Then to figure the real income, I take n=20, i=4.8, and pv=- 180,000 to get a PMT = $14, 200. Mr. Road will want to maintain the real value of his savings account at 12,000. He needs to increase the quietus of the account in line with inflation which is 4%. provided 120 is operable from interest earned to spend distributiv ely year, because the nominal interest rat! e on the account is 5%, only the first 1% of interest earnings on the account. The total real income...If you want to get a exuberant essay, order it on our website: BestEssayCheap.com

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