Problem; 1
Your retirement strategy is to invest 500 per month in an equity mutual fund and 200 per month in a bond fund. Your retirement date is 30 years from now. The expected return on the stock fund is expected to be 8% and the expected return on the bond fund is expected to be 3%. When you retire, you will combine your money into an account with an expected 5% return. How much can you withdraw each month from your account assuming a 25 year withdrawal period? At the end of the 25 years, the account value will be zero.
Problem; 2
You have just been offered a job. You have the choice of two different salary arrangements. You can have 55,000 per year for the next two years, payable at the end of each year; or you can have 40,000 per year for the next two years, payable at the end of each year, along with a signing bonus of 25,000 payable today. If the interest rate is 6% compounded monthly, which do you prefer?