How old will each be when she becomes a millionaire

Assignment Help Finance Basics
Reference no: EM131106212

Erika and Kitty, who are twins, just received $30,000 each for their 25th birthday. They both have aspirations to become millionaires. Each plans to make a $5,000 annual contribution to her "early retirement fund" on her birthday, beginning a year from today. Erika opened an account with the Safety First Bond Fund, a mutual fund that invests in high-quality bonds whose investors have earned 6% per year in the past. Kitty invested in the New Issue Bio-Tech Fund, which invests in small, newly issued bio-tech stocks and whose investors have earned an average of 20% per year in the fund's relatively short history.
a. If the two women's funds earn the same returns in the future as in the past, how old will each be when she becomes a millionaire?
b. How large would Erika's annual contributions have to be for her to become a millionaire at the same age as Kitty, assuming their expected returns are realized?
c. Is it rational or irrational for Erika to invest in the bond fund rather than in stocks?

Reference no: EM131106212

Questions Cloud

What would the future and present values : What would the future and present values be if it was an annuity due?
Prepare the journal entries necessary to record issue : Prepare the journal entries necessary to record issue of the new bonds and the refunding of the bonds.
Number of interest periods over life of bond : (Information Related to Various Bond Issues) Pawnee Inc. has issued three types of debt on January 1, 2010, the start of the company's fiscal year.
Prepare the journal entry at the date of the bond issuance : (Entries for Bond Transactions) On January 1, 2010, Osborn Company sold 12% bonds having a maturity value of $800,000 for $860,651.79, which provides the bondholders with a 10% yield.
How old will each be when she becomes a millionaire : Kitty invested in the New Issue Bio-Tech Fund, which invests in small, newly issued bio-tech stocks and whose investors have earned an average of 20% per year in the fund's relatively short history. a. If the two women's funds earn the same returns i..
How much should you raise your product prices : you would have to borrow funds from your bank at a nominal 12%, daily compounding based on a 360-day year. You want to increase your base prices by exactly enough to offset your bank interest cost. To the closest whole percentage point, by how much s..
The payment of interest and the amortization of the premium : Will the bond interest expense reported in 2011 be the same as, greater than, or less than the amount that would be reported if the straight-line method of amortization were used?
Optimization and root finding : OPTIMIZATION AND ROOT FINDING Often in physics it is desirable to find optimum conditions and to find the roots of functions numerically. The aim of this assignment is to investigate a function f(x), which is given by the formula f(x) = sin(x a − x 1..
What apr rate should you charge your customers : To carry receivables, you must borrow funds from your bank at a nominal 6%, monthly compounding. To offset your overhead, you want to charge your customers an EAR (or EFF%) that is 2% more than the bank is charging you. What APR rate should you charg..

Reviews

Write a Review

Finance Basics Questions & Answers

  Multiple choice questions on basic accounts and finance1 a

multiple choice questions on basic accounts and finance.1. a firm has forecasted sales of 30000 in april 45000 in may

  Discounted cash flow method of valuation

Write down the the name of some problems which are associated with using the discounted cash flow technique of valuation.

  The market risk premium is 89 percent and the risk-free

tidewater fishing has a current beta of 1.21. the market risk premium is 8.9 percent and the risk-free rate of return

  Gold fields reports all amounts in millions of south

retained earnings relations. the balance sheet of gold fields limited see problem 1.22 for the year ended june 30 2007

  What purpose do venture capitalism firms have

What purpose do Venture Capitalism firms have and why should they be abundant in Emerging Markets?

  Capital budgeting and dividend policy

Critically reflect on the importance of selecting the right projects in which to invest capital.

  Find the value of firm

Delta software was discovered last year to develop software for gaming applications. The founder initially invested $800,000 and received eight million shares of stock.

  Delfinos expects to pay an annual dividend of 150 per

delfinos expects to pay an annual dividend of 1.50 per share next year. what is the anticipated dividend for year 5 if

  Find the exercise price for the option

The no-arbitrage price of the option is $100. Use risk-neutral probabilities to find the exercise price for the option.

  If a six month treasury bill is purchased for 9675 on the

if a six month treasury bill is purchased for .9675 on the dollar what is the discount yield the annual rate of

  Make an equation for the number of cups sold

Assume you had a lemonade stand, and when you charge $1 per cup pf lemonade you sell 60 cups. But when you raise the price to $1.50 you only sell thirty cups.

  Internet regarding the differences in culture

Conduct research using the online library, your text book and the Internet regarding the differences in culture, management styles, and communication strategies between the U.S. and Cambodia.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd