Question

11.1 The Woodsons Struggle with Two Investment Goals Like many married couples, Damian and Brandi Woodson are trying their best to save for two impor- tant investment objectives: (1) an education fund to put their two children through college; and (21 a retirement nest egg for themselves. They want to set aside $100,000 per child by the time each one starts college. Given that their children are now 10 and 12 years old, Damian and Brandi have 6 years remaining for one child and 8 for the other. As far as their retirement plans are concerned, the wo sons both hope to retire in 20 years, when they reach age 65. Both Damian and brand work, and together, they currently earn about $90,000 a year. The Voodsons started a college fund some years ago by investing $6,000 a year in bank CDS. That fund is now worth $65,000. They also have $50,000 that they received from an inheritance invested in several mutual funds and another $20,000 in a tax-sheltered retirement account. Damian and Brandi believe that they'll be able to continue putting away $6.000 a year for the next 20 years. In fact, blanc thinks they'll be able to put away even more, particularly after the children are out of school. The wood sons are fairly conservative investors and feel they can probably earn about 6 percent on their money. (Ignore taxes for the purpose of this exercise.) Critical Thinking Questions 1. Use Worksheet 11.1 to determine whether the Woodsons have enough money right now to meet their children's educational needs. That is, will the $65,000 they've accumulated so far be enough to put their children through school, given they can invest their money at 6 percent? Remember, they want to have $100,000 set aside for each child by the time each one starts college. 2. Regarding their retirement nest egg, assume that no additions are made to either the $50,000 they now have in mutual funds or to the $20,000 in the retirement account. How much would these investments be worth in 20 years, given that they can earn 6 percent? 3. Now, if the Woodsons can invest $6,000 a year for the next 20 years and apply all of that to their retirement nest egg, how much would they be able to accumulate given their 6 percent rate of return? 4. How do you think the Woodsons are doing with regard to meeting their twin investment obiec- tives? Explain.

Answer 1

Page amount required & boooo pea child & two clold booor x2 2 & 200000 nk Woodions have - ne Tranche ritha obli 9 65000 Ternal Mutual funds f 5oooo at home The shelteand retionert ale & 20000 Total Funds & 135000 They don't have enough money for their cholde College Teducation. The amount of & 65000 doan't accumulated enough to put their children into school. They can innost their money at the rate 6% for 6 years belanse time remaining for one child is 6 years an another child a & years So, & 135000 x full 2 & 1 8 1500 (t) & 6ooo for next 6 yearly 2 $ 36000 Good for next 6 years $997500 i by investing for 6 yenes woodeons generates enough money 50000 2. Investment in go years. Regrading their rest eps. - Mutual fords Refire merf me - $ 20000 &70000 $70000 @ 6% Lefter do years. 800 X 3.2071 & 2 2 4497 of woodsens invert & 6000 a year for de years at of 6%.. then, 6000 x 38.1992 2 $933856

Dale Pogo 4. hoodsons have funde Approximately R 135000 and their Can fame & Good per year. They can inneet the of 135000 for years at the rate of 6% By investing the amount for six year the woodsune have enough Chamele tire money for their child's education. If www drone inneet their money for go years they booking their money for do years. That is not good for to ON 021