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BUY NOWFINA501: Your team is planning to invest in the four of the NZX10 stocks. Your team has $100,000 to fully invest: Finance Assignment, AUT, NZ
University | Auckland University of Technology (AUT) |
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Subject | FINA501: Finance Assignment |
Question Three: Time Value of Money – Retirement Plan
As part of your personal financial plan, you are planning for your retirement in 40 years’ time. You currently have $1,000 invested in a money market account and $1,000 in an equity fund. The money market account is estimated to earn an annual return of 5% whereas the equity fund is expected to earn an annual return of 13.5%. For the next 40 years, you plan to add $200 per month at the end of each month to the money market account and $300 per month to the equity fund.
When you retire, you plan to withdraw an equal amount for each of the next 30 years at the end of each month and have nothing left at the end (of 30 years after retirement).
Additionally, when you retire you will transfer all amount from these two funds into a savings account that earns 4.75% annual rate of interest per year. [Note: All interest rates (of returns) will be compounded monthly.]
⦁ Given the above plan, how much will you have in total (sum of all funds) at the time you retire (assuming that the rates will remain as forecasted)? Show all formula(s), and values in the formula and clearly label the final answer. Briefly interpret your answer.
[Word limit: 50 words. Answers beyond word limit will not be marked.]
⦁ Assuming that the rates will remain as forecasted, how much can you withdraw each month when (and after) you retire? Show all formula(s), and values in the formula and clearly label the final answer. Briefly interpret your answer.
[Word limit: 50 words. Answers beyond word limit will not be marked.]
⦁ Does your answer in part (b) seem too large? Why or why not? Support your answer using relevant concepts, figures and calculations (you can make some assumptions in your calculation).
[Word limit: 100 words. Answers beyond the word limit will not be marked.]
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