Question

1. Bella is 23 years old and wants to invest money for her retirement. She wants to have $2,000,000 saved up when she retires at age 65. a) If she can earn 10% per year in an equity mutual fund, calculate the amount of money she would have to invest in equal annual amounts to achieve her retirement goal. b) Alternatively, how much would she have to invest in equal monthly amounts starting at the end of the current year or month respectively. c) Looking at these numbers, most people would think this is affordable. Why do you think most Americans are not saving for their retirement? Discuss what you believe to be the real reason most 23 year olds (like Bella) are not saving for retirement. What do you think we can do to change this trend? Provide your work in Excel for parts a) and b). Write 100-200 words discussing part c). 2.I want you to find a home that you would like to buy. Use Google, Zillow, Realtor.com, or another real estate site to find a home. Make sure to include the link for the home in your discussion post. Next, prepare an Amortization Schedule for this home. I expect the amortization schedule to be completed in Excel with all work shown in Excel. Thus, I should be able to click on any cell and see your work embedded in that cell. If this is not done, it will be an automatic 50% deduction. Assume you pay the full asking price and make a 20% down-payment. Do not use an online amortization schedule. I will only give you credit if you create your own amortization table. Use page 225 of your textbook as a guide. Note the textbook amortization schedule is using an annual payment. Please complete your schedule for both 180 months (15 years) and 360 months (30 years). Find the appropriate interest rate for your area at Bankrate. Remember to divide your interest by 12 to get a monthly rate. After completing the amortization schedule, attach your amortization sheet to a new post and discuss what you found. How much interest will you pay over the life of each loan? You can determine this by summing all the payments and subtracting the amount borrowed.

Answer 1

Since, multiple questions have been posted, I have answered the first one relating to Bella.

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Part a)

The amount of annual investment can be calculated with the use of PMT (Payment) function/formula of EXCEL. The function/formula for PMT is PMT(Rate,Nper,PV,FV) where Rate = Interest Rate (here, Rate of Return on Mutual Funds), Nper = Period, PV = Present Value (if any) and FV = Future Value (here, Lump Sum Amount Desired at Retirement).

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Here, Rate = 10%, Nper = 65 - 23 = 42, PV = 0 and FV = $2,000,000

Using these values in the above function/formula for PMT, we get,

Amount to be Invested Annually = PMT(10%,42,0,2000000) = $3,719.98

Bella will have to invest an amount of $3719.98 annually to achieve the desired lump sum amount of $2,000,000.

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Part b)

Using the same PMT function/formula as specified in Part a) we can arrive at the amount of monthly investment.

Here, Rate = 10%/12, Nper = (65 - 23)*12 = 42*12 = 504, PV = 0 and FV = $2,000,000

Using these values in the above function/formula for PMT, we get,

Amount to be Invested Monthly = PMT(10%/12,504,0,2000000) = $258.25

Bella will have to invest an amount of $258.25 on a monthly basis to achieve the desired lump sum amount of $2,000,000.

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Part c)

Based on the above calculations, it can be seen that the amount of annual/monthly investment required to achieve the desired amount of $2,000,000 is affordable for individuals earning a decent amount of salary. A possible reason as to why young individuals are not willing to invest/save money for their retirement is that they prefer to spend their money on luxuries such as travel, cars, etc. Rather than saving money for future requirements, they prefer to enjoy their current lifestyle. Another possible reason could be the lack of knowlege about various investment avenues and the benefits associated with such investments. It is also highly likely that most of the young individuals are not earning enough money and are therefore, not in a position to contribute/save money for future needs.