Question

You are planning to save for retrement over the next 20 years. To do this, you will invest $1.200 a month in a stock account and $900 a month in a bond account. The return of the stock account is expected to be 10 percent, and the bond account will pay 6 percent. When you retire, you will comblne your money Into an account with a 8 percent return Required: How much can you withdraw each month from your account assuming a 25-year withdrawal period? Do not round your intermediate calculations.) $559.723 91 O $10.44747 O $10.242 61 O $10.03776 O $122 91137

Answer 1

Solution:
1st	Answer is 3rd option $10,242.61
Working Notes:
	First of all we will calculate future value of annuity of saving in stock & Bond at end of 20 Years.
	Future value of annuity savings in stock at end of 20 years
	Future value of annuity = P x ((1+i)^n - 1)/i
	P= Monthly deposits =$1,200
	Return of stock =i= 10%/12
	n= no. Of payments x no. Of years
	= 12 x 20 =240
	Future value of annuity = ??
	Future value of stock annuity = P x ((1+i)^n - 1)/i
	= 1200 x((1+(10%/12))^240 - 1)/(10%/12)
	=911242.60319
	Future value of stock annuity =$911,242.60319
	Future value of annuity savings in Bond at end of 20 years
	Future value of annuity = P x ((1+i)^n - 1)/i
	P= Monthly deposits =$900
	Return of stock =i= 6%/12
	n= no. Of payments x no. Of years
	= 12 x 20 =240
	Future value of annuity = ??
	Future value of stock annuity = P x ((1+i)^n - 1)/i
	= 900 x((1+(6%/12))^240 - 1)/(6%/12)
	=415836.80565
	Future value of Bond annuity =$415,836.80565
So,	Total amount at end of 20 years at retirement account balance
	= Future value of annuity of stock & bond
	=$911,242.60319 + $415,836.80565
	= $1,327,079.40884
Now	This is deposited in account which gives 8 % return for 25 years with monthly withdrawal
	Means, amount deposited in this account will be the present value of all the monthly withdrawal made during retirement period of 25 years .
	Present value of monthly withdrawal = Amount deposited = $1,327,079.40884
	present value of annuity = Px[ 1-1 /(1 + i)^n)]/ i
	P=monthly payment = ??
	i= interest rate per period = 8%/12
	n= no. Of period = 12 x 25 =300
	present value of annuity = Px[ 1-1 /(1 + i)^n)]/ i
	$1,327,079.40884 = P x (1-1/(1+(8%/12))^300)/(8%/12)
	or $1,327,079.40884 = P x 129.5645226
	P= $1,327,079.40884/129.5645226
	P= $10242.61412
	Monthly withdrawal = p = $10,242.61
2nd	Answer is 4th option . II , III and IV only
Working Notes:
	It does not have double taxation of partnership profits , as once it is taxed in hands of firm it will be exempt in hands of partners.
	Partnership have limited life as partnership can be dissolve as any of partner death, and in case of solely partnership at any of partners out of two death it will be dissolved, hence it have limited life. It is not perpetual like Companies.
	As there are only two partners, active involvement in the firm by all the partners will be required to be called partnership.
	In partnership it will have unlimited liability of each partners , except in case of limited liability partnership, which is not our given case.
Hence	Answer is 4th option II, III, and IV only
Please feel free to ask if anything about above solution in comment section of the question.