Minicase p.154

Mr. way 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 rice beer he pass on receive $1, 350 per month from the specie in investments. He plans to spend $500 a month on incite and hobbies. My rootage advice to Mr. path is to cut around of his travel and by-line expenses, so that he stack be sure to have fair to middling money for his periodic 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 requital will increase as the inflation rate increases. If I figure the annual consumption, and with a 20 year annuity, we provoke 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 hold in 19,717+600+9000, we will 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 determine 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 history are fixed in nominal terms, so their buy personnel will decline. Mr.

Road should spend less at this time, because he needs to save up for the future. If were seek 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, 2! 00. Mr. Road will want to maintain the real value of his savings account at 12,000. He needs to increase the symmetry of the account in line with inflation which is 4%. precisely 120 is operable from interest earned to spend each year, because the nominal interest rate 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 wide of the mark essay, order it on our website: OrderEssay.net

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