#### Details of this Paper

##### Finance Assignment 2 - Part I, II and III

**Description**

solution

**Question**

Question;Part I - Retirement Planning:Although you are young, you are already thinking about retirement. You have decided you want to retire 30 years from now. You want to live on a retirement of $72,000 per year. You figure you will live about 40 years on that retirement (you work-out on a regular basis, and live a healthy lifestyle). While on retirement, you think you can earn 6% on investments. We will work through this problem a step at a time.a. How much will you have to have in ?the bank? at retirement if you want to withdraw $72,000 per year over 40 years of retirement, assuming the balance is earning 6% per year (compounded annually)? {Please see annuities when they exist!}b. Rework part a) using monthly withdrawals (of $6,000 per month ? which is the same as $72,000 per year), and monthly compounding, still at 6% per year (compounding monthly this time).c. Now that you have an amount needed to hit your retirement plan, let?s find out how much you will need to save each year to hit that target. What fixed amount would you need to save between now and retirement (time 30), in order to hit the amount in part a). This time we will assume annual contributions (only 30 of them) and annual compounding at 8% interest rate.d. Now we will rework our retirement savings amount for monthly contributions, and monthly compounding at an 8% annual rate. This time tell me how much you would have to save per month to end up with the amount you calculated in part b) in 30 years of monthly payments.Part II ? Buying a House:You have found a great house for $250,000. You can only put $30,000 down (as a down payment), and will have to finance the rest at 4.75%.a. Ignoring escrow and assuming no points were charged, what would the base monthly payment be on a 30 year loan?b. What is the effective annual rate on the monthly loan? {This answer should be quoted in individual basis points. For example 4.37%, not simply 4%. A basis point is one one-hundredth of a percentage point.Part III ? Random Time Value of Money Questions:a. You are interested in buying a house in ten years. You are interested in houses costing about $180,000. How much will a similar house cost in ten years, if the real estate inflation rate averages 2% per year?b. If you want to pay cash for a house, and can afford to save $800 per month, how long will it take to save enough to buy a $200,000 house (that is the future value of the home, no need to adjust for inflation here), assuming an interest rate of 4.50%?c. If you want to pay cash for a $200,000 house ten years (120 months) from now and can earn a 7% rate of return, how much per month do you need to save in order to afford the home?

Paper#48580 | Written in 18-Jul-2015

Price :*$27*