ISPM 301 Assignment-6-Solution

ISPM 301 Assignment-6-Solution - Suppose you want to retire...

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Part c) Calculate the probability that you meet your goal based on the 1000 simulated values. Suppose you want to retire 30 years after you graduate. At the beginning of each year you plan to add $5000 to your retirement account which you will invest in the stock market. Based on historical data you estimate that the annual return on the stock market is normally distributed with a mean of 12% and a standard deviation of 25%. If your goal is have $1,000,000 when you retire, what is the probability you reach your goal? Assume that if you reach your goal of $1,000,000 before 30 years you will put your money in a money market that earns 5% for sure. Hint: keep track of your beginning cash position – for year 1 this is $5,000 – and your ending cash position. Your ending cash position is a function of your beginning cash position and the return you earn from the stock market or money market. You should also make a spreadsheet model that is easy to adjust in case you decide to save a different amount each year or you want to change the assumed market return distribution or some other parameter change. Part a) Simulate your ending balance in 30 years 1000 times using Visual Basic for Applicaitons to repeat the process keeping track of the ending balance. Part b) Create a histogram of the ending balance in 30 years. You can create the histogram in any way you choose.
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Yearly investment $5,000 Goal $1,000,000 Distribution of annual return on stocks (normal) Mean 12% Stdev 25% 46% Pr(Meet Go $964,046.82 Simulation of Amanda's cash position Iteration Year 30 Value Year Beginning Return Ending 1 $608,726.16 1 $5,000 9.79% $5,490 2 $679,064.66 2 $10,490 0.70% $10,563 3 $1,362,139.91 3 $15,563 32.91% $20,685 4 $775,194.53 4 $25,685 84.72% $47,446 5 $618,470.70 5 $52,446 -38.62% $32,191 6 $384,455.27 6 $37,191 5.38% $39,190 7 $637,740.25 7 $44,190 6.73% $47,162 8 $767,818.51 8 $52,162 1.77% $53,086 9 $1,282,433.94 9 $58,086 39.52% $81,040 10 $1,457,833.49 10 $86,040 -20.08% $68,767 11 $555,604.83 11 $73,767 -29.36% $52,112 12 $1,186,217.69 12 $57,112 -1.89% $56,030 13 $970,060.85 13 $61,030 7.04% $65,327 14 $1,184,006.65 14 $70,327 18.37% $83,246 15 $1,182,809.55 15 $88,246 -15.29% $74,755 16 $355,749.49 16 $79,755 -2.10% $78,082 17 $1,059,231.96 17 $83,082 2.26% $84,958 18 $854,073.50 18 $89,958 12.34% $101,062 19 $1,892,987.12 19 $106,062 5.09% $111,465 20 $1,207,356.42 20 $116,465 12.91% $131,504 21 $1,022,962.38 21 $136,504 19.17% $162,669 22 $189,415.96 22 $167,669 -4.25% $160,547 23 $1,356,229.21 23 $165,547 -7.52% $153,092 24 $1,594,475.11 24 $158,092 -15.70% $133,270 25 $1,174,299.02 25 $138,270 51.78% $209,868 26 $1,728,150.74 26 $214,868 -3.06% $208,286 27 $1,294,509.04 27 $213,286 -3.92% $204,928 28 $397,958.15 28 $209,928 20.10% $252,127 29 $687,289.30 29 $257,127 -10.87% $229,180 30 $1,132,741.20 30 $234,180 -19.64% $188,197 31 $1,586,907.78 32 $790,061.57 33 $216,947.90 34 $412,276.77 35 $628,906.97 36 $211,513.86 37 $1,415,262.03 38 $1,397,759.05
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This note was uploaded on 04/30/2008 for the course ISPM 301 taught by Professor 3 during the Spring '08 term at Tulane.

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ISPM 301 Assignment-6-Solution - Suppose you want to retire...

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