a.
To calculate: Number of years taken by Person A and Person L to become millionaires if both earn the same return.
Financial Goal:
Financial goal is a money based target which a person wants to achieve by the certain age. It requires making plan for reducing debt, creating enough wealth to have at the time of retirement and reducing the amount of tax.
b.
To calculate: Person A’s contribution to become millionaire at the same age of Person L.
Financial Goal:
Financial goal is a money based target which a person wants to achieve by the certain age. It requires making plan for reducing debt, creating enough wealth to have at the time of retirement and reducing the amount of tax.
c.
To explain: Whether it is rational or irrational for Person A to invest in the bond fund rather than in stocks.
Financial Goal:
Financial goal is a money based target which a person wants to achieve by the certain age. It requires making plan for reducing debt, creating enough wealth to have at the time of retirement and reducing the amount of tax.
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Chapter 5 Solutions
Fundamentals Of Financial Management, Concise Edition (mindtap Course List)
- Allison and Leslie, who are twins, just received $30,000 each for their 21th birthday. They both have aspirations to become millionaires. Each plans to make a $5,000 annual contribution to her "early retirement fund" on her birthday, beginning a year from today. Allison opened an account with the Safety First Bond Fund, a mutual fund that invests in high-quality bonds whose investors have earned 6% per year in the past. Leslie invested in the New Issue Bio-Tech Fund, which invests in small, newly issued bio-tech stocks and whose investors have earned an average of 17% per year in the fund's relatively short history. If the two women’s funds earn the same returns in the future as in the past, how old will each be when she becomes a millionaire? Do not round intermediate calculations. Round your answers to two decimal places. How large would Allison's annual contributions have to be for her to become a millionaire at the same age as Leslie, assuming their expected returns are realized?…arrow_forwardAllison and Leslle, who are twins, just received $35,000 each for their 22th birthday. They both have aspirations to become millionaires. Each plans to make a $5,000 annual contribution to her "early retirement fund" on her birthday, beginning a year from today. Allison opened an account with the Safety First Bond Fund, a mutual fund that invests in high-quality bonds whose investors have earned 7% per year in the past. Leslie invested in the New Issue Blo-Tech Fund, which Invests in small, newly Issued bio-tech stocks and whose investors have earned an average of 14% per year in the fund's relatively short history. a. If the two women's funds earn the same returns the future as in the past, how old will each be when she becomes millionaire? Do not round Intermediate calculations. Round your answers to two decimal places. Allison: years Leslie: b. How large would Allison's annual contributions have to be for her to become a millionaire at the same age as Lesile, assuming their expected…arrow_forwardErika and Kitty, who are twins, just received $30,000 each for their 20th birthday. Theyboth have aspirations to become millionaires. Each plans to make a $5,000 annualcontribution to her “early retirement fund” on her birthday, beginning a year from today.Erika opened an account with the Safety First Bond Fund, a mutual fund that invests inhigh-quality bonds whose investors have earned 7% per year in the past. Kitty investedin the New Issue Bio-Tech Fund, which invests in small, newly issued bio-tech stocks andwhose investors have earned an average of 20% per year in the fund’s relatively shorthistory.a. If the two women’s funds earn the same returns in the future as in the past,how old will each be when she becomes a millionaire?b. How large would Erika’s annual contributions have to be for her to becomemillionaire at the same age as Kitty, assuming their expected returns arerealized?c. Is it rational or irrational for Erika to invest in the bond fund rather than instocks?arrow_forward
- Allison and Leslie, who are twins, just received $20,000 each for their 27th birthdays. They both have aspirations to become millionaires. Each plans to make a $5,000 annual contribution to her "early retirement fund" on her birthday, beginning a year from today. Allison opened an account with the Safety First Bond Fund, a mutual fund that invests in high-quality bonds whose investors have earned 7% per year in the past. Leslie invested in the New Issue Bio-Tech Fund, which invests in small, newly issued bio-tech stocks and whose investors have earned an average of 17% per year in the fund's relatively short history. A. If Allison's fund earns the same returns in the future as in the past, how old will she be when she becomes a millionaire? Do not round intermediate calculations. Round your answer to two decimal places. B. If Leslie's fund earns the same returns in the future as in the past, how old will she be when she becomes a millionaire? Do not round intermediate calculations.…arrow_forwardSarah and Mae, who are twins, just received P30,000 each for their 25th birthday. They both have aspirations to become millionaires. Each plan to make a P5,000 annual contribution to her “early retirement fund” on her birthday, beginning a year from today. Sarah opened an account with the First Bond Fund, a mutual fund that invests in high-quality bonds whose investors have earned 6% per year in the past. Mae invested in the New Issue Bio-Tech Fund, which invests in small, newly issued biotech stocks and whose investors have earned an average of 20% per year in the fund’s relatively short history. Post your Excel file here to answer the questions below: a. Draw a timeline of the cash flows. b. If the two women’s funds earn the same returns in the future as in the past, how old will each be when she becomes a millionaire? c. How large would Sarah’s annual contributions have to be for her to become a millionaire at the same age as Mae, assuming their expected returns are realized?arrow_forwardAllison and Leslie, who are twins, just received $15,000 each for their 29th birthday. They both have aspirations to become millionaires. Each plans to make a $5,000 annual contribution to her "early retivement fund" on her birthday, begiming a year from today. Allison opened an account with the Jafety First Bund Fund, a mutual fund that invests in high-quality bonds whose investors have earned 8% per year in the past. Leslie invested in the New Issue Bio- Tech Fund, which invests in small, newly issued bio tech stucks and whose investors have earned an average of 17% per year in the find's relatively short history. u) If the two women's funds eam the same returns in the future as in the past, how old will each be when she becomes a millionaire? Round your answers to two decimal places. years Allison Leslie. years b) How large would Allison's annual contributions have to be for her to become a millionaire at the same age as Leslie, assuming their expected returns are realized? Round…arrow_forward
- Erika and Kitty, who are twins, have just received $30,000 each for their 25th Each sister plans to make a $5,000 annual contribution to her retirement fund on her birthday, beginning a year from today. Erika opened an account with a fund that provides a 6% return per year. Kitty invested in fund that provides a 20% return per year. How old will each sister be when she becomes a millionaire? How large should Erika’s annual contributions have to be for her to become a millionaire at the same age as Kitty?arrow_forwardMike and Emily each have invested $100,000 in an investment account. No other contributions will be made to their investment account. Both have the same goal; they each want their account to reach $3,000,000 at which time each will retire. Mike has his money invested in risk-free securities with an expected return of 12% compounded monthly. Emily has her money invested in a stock fund with an expected return of 15% compounded quarterly. How many years after Emily retires will Mike retire?arrow_forwardMike and Emily each have invested $100, 000 in an investment account. No other contributions will be made to their investment account. Both have the sarne goal; they each want their account to reach $3,000,000 at which time each will retire. Mike has his money invested in risk free securities with an expected return of 12% compounded monthly. Emily has her money invested in a stock fund with an expected return of 15% compounded quarterly. How many years after Emily retires will Mike retire?arrow_forward
- Felix is keen to apply his finance knowledge to his real-life investment goals. He is currently 19 years of age and wishes to retire from full-time work at the age of 60 with $5 000 000 in his portfolio. He started contributing monthly to a NASDAQ index fund. e) Felix is now 60 years old. He wants to set up a college fund for his grandchild Salah. He is aiming to be able to pass on $150 000 in 10 years’ time. How much does Felix need to set aside today into a college fund for Salah, assuming the fund earns 7.20% per annum?arrow_forwardJi Hyun's generous grandfather invests $1,000 when she is born into an index fund that produces a 7% return compounded annually. He plans to give the money in the account to her on her 18th birthday to help her pay for her college expenses. How much money will be in the account at the end of 18 years? Click here to access the TVM Factor Table calculator. $arrow_forwardStephanie inherited $40,000. She wants to put some of the money in a certificate of deposit that pays 2.1% interest per year and the rest in a mutual fund account that pays 6.5% per year. How much should she invest in each account if she wants to earn 5.4% interest per year on the total amount?arrow_forward
- Pfin (with Mindtap, 1 Term Printed Access Card) (...FinanceISBN:9780357033609Author:Randall Billingsley, Lawrence J. Gitman, Michael D. JoehnkPublisher:Cengage Learning