Question

You have decided that you would like to retire in 30 years and have 2,500,000 in your retirement fund. your broker has told you that if you invest in stocks your rate of return will be 10%, and if you invest in bonds your rate of return will be 8%. calculate how much you would have to save each year under each investment plan to accumulate 2,500,000?

______Stocks

______Bonds

Answer 1

The amount to be saved each year can be found using future value of annuity equation

A[ (1+ r)" – 1] Future value annuity =

Invest in stocks

Ax[(1+ 0.10) 30 – 1] $2,500,000 0.10

Solving for the value of A in the above equation,

Amount to be saved each year if you invest in stocks = $ 15,198.12

Invest in bonds

AX[(1 + 0.08) 30 – 1] $2,500,000 0.08

Amount to be saved each year if you invest in bonds = $ 22,068.58

Stocks	$15,198.12
Bonds	$22,068.58