View the step-by-step solution to:

LIFE-CYCLE FINANCIAL PLANNING Basics Input s Real Riskfree Rate Retirement Age 2.

Suppose you are currently 28 years old and expect to earn a constant real salary of $64,000 starting next year. You are planning to work for 32 years and then retire. You start off with a $200,000 inheritance and expect to live until age 87 and leave nothing. You are limited to investing in a risk free asset with a risk free rate of 2.8%. Develop a financial plan for real savings and real consumption over your life time.
Basics Inputs Real Riskfre Rate 2.8% 28 Retirement Age 60 64 20 Outputs PV of Work Yrs $1 An uity $20.96 PV of $1 Infinite An uity $35.71 Working Yrs PV / Infinite PV 58.67% Date 0 1 2 3 4 5 6 7 8 9 10 1 12 13 14 15 16 17 18 19 20 21 2 23 24 25 26 27 28 29 30 31 32 3 34 35 36 37 38 39 40 41 42 43 4 45 46 47 48 49 50 51 52 53 54 5 56 57 58 59 60 61 62 63 64 65 6 67 68 69 70 Age 28 29 30 31 32 3 34 35 36 37 38 39 40 41 42 43 4 45 46 47 48 49 50 51 52 53 54 5 56 57 58 59 60 61 62 63 64 65 6 67 68 69 70 71 72 73 74 75 76 7 78 79 80 81 82 83 84 85 86 87 8 89 90 91 92 93 94 95 96 97 98 Real Salary $64,0 0 $64,0 0 $64,0 0 $64,0 0 $64,0 0 $64,0 0 $64,0 0 $64,0 0 $64,0 0 $64,0 0 $64,0 0 $64,0 0 $64,0 0 $64,0 0 $64,0 0 $64,0 0 $64,0 0 $64,0 0 $64,0 0 $64,0 0 $64,0 0 $64,0 0 $64,0 0 $64,0 0 $64,0 0 $64,0 0 $64,0 0 $64,0 0 $64,0 0 $64,0 0 $64,0 0 $64,0 0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Real Savings $26,4 8 $26,4 8 $26,4 8 $26,4 8 $26,4 8 $26,4 8 $26,4 8 $26,4 8 $26,4 8 $26,4 8 $26,4 8 $26,4 8 $26,4 8 $26,4 8 $26,4 8 $26,4 8 $26,4 8 $26,4 8 $26,4 8 $26,4 8 $26,4 8 $26,4 8 $26,4 8 $26,4 8 $26,4 8 $26,4 8 $26,4 8 $26,4 8 $26,4 8 $26,4 8 $26,4 8 $26,4 8 -$37,5 2 -$37,5 2 -$37,5 2 -$37,5 2 -$37,5 2 -$37,5 2 -$37,5 2 -$37,5 2 -$37,5 2 -$37,5 2 -$37,5 2 -$37,5 2 -$37,5 2 -$37,5 2 -$37,5 2 -$37,5 2 -$37,5 2 -$37,5 2 -$37,5 2 -$37,5 2 -$37,5 2 -$37,5 2 -$37,5 2 -$37,5 2 -$37,5 2 -$37,5 2 -$37,5 2 -$37,5 2 -$37,5 2 -$37,5 2 -$37,5 2 -$37,5 2 -$37,5 2 -$37,5 2 -$37,5 2 -$37,5 2 -$37,5 2 -$37,5 2 Real Consumption $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 $37,5 2 Real Human Capital $1,341,127 $1,314,678 $1,287,489 $1,259,539 $1,230,806 $1,201,268 $1,170,904 $1,139,689 $1,107,601 $1,074,613 $1,040,703 $1,0 5,842 $970,0 6 $93 ,16 $895,295 $856,363 $816,341 $7 5,19 $732,904 $689,426 $64 ,729 $598,782 $5 1,548 $502,9 1 $453,075 $401,761 $349,010 $294,783 $239,036 $181,729 $12 ,818 $62,257 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Real Financial Capital $20 ,0 0 $232,048 $264,9 4 $298,863 $3 3,679 $369,471 $406,264 $4 4,08 $482,971 $52 ,943 $564,034 $606,275 $649,69 $694,3 9 $740,2 9 $787,404 $835,90 $8 5,753 $937,0 3 $989,687 $1,043,847 $1,09 ,523 $1,156,758 $1,215,596 $1,276,081 $1,3 8,260 $1,402,180 $1,467,8 9 $1,535,439 $1,604,879 $1,676,264 $1,749,648 $1,825,087 $1,838,638 $1,852,568 $1,86 ,8 8 $1,8 1,610 $1,896,743 $1,912,301 $1,928,293 $1,94 ,734 $1,961,635 $1,979,0 9 $1,9 6,870 $2,015,231 $2,034,106 $2,053,509 $2,073,456 $2,093,961 $2,1 5,040 $2,136,710 $2,158,986 $2,181,8 6 $2,205,428 $2,2 9,628 $2,254,506 $2,280,081 $2,306,372 $2,3 3,398 $2,361,182 $2,389,74 $2,419,105 $2,4 9,28 $2,480,317 $2,512,214 $2,545,0 5 $2,578,713 $2,613,36 $2,648,98 $2,685,608 $2,723,254 Real Total Wealth $1,541,127 $1,546,727 $1,5 2,483 $1,5 8,401 $1,564,485 $1,570,739 $1,57 ,168 $1,583,7 7 $1,590,572 $1,597,5 6 $1,604,736 $1,612,1 7 $1,619,705 $1,627,505 $1,635,524 $1,643,767 $1,652,241 $1,6 0,952 $1,6 9,907 $1,679,1 3 $1,68 ,57 $1,698,305 $1,708,306 $1,718,587 $1,729,156 $1,740,021 $1,751,190 $1,762,672 $1,7 4,475 $1,786,609 $1,79 ,082 $1,81 ,905 $1,825,087 $1,838,638 $1,852,568 $1,86 ,8 8 $1,8 1,610 $1,896,743 $1,912,301 $1,928,293 $1,94 ,734 $1,961,635 $1,979,0 9 $1,9 6,870 $2,015,231 $2,034,106 $2,053,509 $2,073,456 $2,093,961 $2,1 5,040 $2,136,710 $2,158,986 $2,181,8 6 $2,205,428 $2,2 9,628 $2,254,506 $2,280,081 $2,306,372 $2,3 3,398 $2,361,182 $2,389,74 $2,419,105 $2,4 9,28 $2,480,317 $2,512,214 $2,545,0 5 $2,578,713 $2,613,36 $2,648,98 $2,685,608 $2,723,254 LIFE-CYCLE FINANCIAL PLANNING 30 40 50 60 70 80 90 10 -$50,0 0 $0 $50,0 0 $10 ,0 0 $150,0 0 Real Salary & Consumption Over The Life-Cycle Real Salary Real Consumption Age Real Sal & Con 30 40 50 60 70 80 90 10 -$1,0 0,0 0 $0 $1,0 0,0 0 $2,0 0,0 0 $3,0 0,0 0 Real Total Wealth Over The Life-Cycle Real Financial Capital Real Human C Age
Background image of page 1
Sign up to view the entire interaction

Top Answer

I understand that the person earns till age 60 and lives till age 87. So we have 2 source of income until age 60 (salary +... View the full answer

Sign up to view the full answer

Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.

-

Educational Resources
  • -

    Study Documents

    Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

    Browse Documents
  • -

    Question & Answers

    Get one-on-one homework help from our expert tutors—available online 24/7. Ask your own questions or browse existing Q&A threads. Satisfaction guaranteed!

    Ask a Question
Ask a homework question - tutors are online