Reference no: EM13814568
A friend wants to work for 2 years then return to school full time for a master’s degree. OPTION A: He can invest $1,000/month in a mutual fund that earns 6% annually, for 2 years. But he is thinking of waiting five years, and investing only $500/month for the whole five years (he wants to enjoy life - OPTION B), earning the same 6% per year. He feels that by investing twice as much for 2 years instead of 5 years he might have less to live on for the two years of full time school, but will finish his degree three years earlier.
A. How much will he have saved under Option A?
B. How much will he have saved under Option B?
C. When he starts his masters, under Option A, how much can he withdraw per month, for 2 years (assume he continues to earn 6%)?
D. How much can he withdraw per month, for 2 years, under Option B, (assume he continues to earn 6%)?
E. Which option would you choose, and why?
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