fin2010-assi1

fin2010-assi1 - We suggest David using the $500,000 savings...

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We suggest David using the $500,000 savings solely to support Louis' education first. Conducting a sensitivity test on the rate applied to the savings in 4 years: (Number of Years: 4, Present Value: $500,000) Interest Rate Future Value (Using the FV function) 0% $500,000.00 1% $520,302.01 2% $541,216.08 3% $562,754.41 4% $584,929.28 5% $607,753.13 6% $631,238.48 7% $655,398.01 8% $680,244.48 9% $705,790.81 10% $732,050.00 Assume the Australian University study expenses = $200,000 per year, which equals to $600,000 for the whole Australian study expenses. Putting the money in an investment tool (e.g. funds) with 5% or higher return will be desirable for David, as he already has adequate money to support his son's University tuition by the time Louis enters the Australian University. As for his retirement spending, he will depend on the $1.5m lump sum and the monthly savings of $3600 for 5 years until he retires. He requires $10,000 every month after retirement to support his living. Assuming he and his wife will live for another 25 years, and the interest rate is 5%. The required amount of money to support his living at the time he retires: $1,710,600.47 Conducting another sensitivity test to see the desirable interest rate to make his living: (Monthly savings: $3600, # of months: 5*12 = 60) Interest Rate Future Value Sum received at retirement Total Sum 0% $216,000.00 $1,500,000.00 $1,716,000.00 1% $221,396.58 $1,500,000.00 $1,721,396.58 2% $226,970.48 $1,500,000.00 $1,726,970.48 3% $232,728.17 $1,500,000.00 $1,732,728.17 4% $238,676.32 $1,500,000.00 $1,738,676.32 5% $244,821.90 $1,500,000.00 $1,744,821.90 6% $251,172.11 $1,500,000.00 $1,751,172.11 7% $257,734.45 $1,500,000.00 $1,757,734.45 8% $264,516.68 $1,500,000.00 $1,764,516.68 9% $271,526.89 $1,500,000.00 $1,771,526.89 10% $278,773.46 $1,500,000.00 $1,778,773.46 Interest Rate at 1% (or even less) on the monthly savings would be sufficient for David's living. However, David can put his savings on investment tools with higher returns so as to cover up any financial risks that may happen in future.
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Comparing Risks MassMutual Equity Edge is subjected to the following risks: 1) In order to obtain the built-in principal protection, one must be fully invested for the length of
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fin2010-assi1 - We suggest David using the $500,000 savings...

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