Future value of a portfolio. Rachel and Richard want to know when their current portfolio will be sufficient for them to retire. They have the following balances in their portfolio:
Money market account (MM): $34,000
Government bond mutual fund (GB): $130,000
Large capital mutual fund (LC): $103,000
Small capital mutual fund (SC): $75,000
Real estate trust fund (RE): $88,000
Rachel and Richard believe they need at least $1,500,000 to retire. The money market account grows at 3.5 % annually, the government bond mutual fund grows at 5.0 % annually, the large capital mutual fund grows at 10.5 % annually, the small capital mutual fund grows at 13.5 % annually, and the real estate trust fund grows at 4.5 % annually. With the assumption that no more funds will be deposited into any of these accounts, how long will it be until they reach the $1,500,000 goal?
How many years or more to reach 1,500,000?
(Round to the nearest whole number.)
We first have to calculate the weighted average return
Weight of MM = 34,000/430,000 = 0.0791
Weight of GB = 130,000/430,000 = 0.3023
Weight of LC = 103,000/430,000 = 0.2395
Weight of SC = 75,000/430,000 = 0.1744
Weight of RE = 88,000/430,000 = 0.2047
Net Cost = 0.0791*3.5% +0.3023*5% + 0.2395*10.5% + 0.1744*13.5% + 0.2047*4.5% = 7.57865%
RRATE = 0.0757865, NPER =? , PV = 430,000 FV = 1,500,000
Where NPER is the number of years
So, we calculate N by using =nper(rate,pmt,pv,fv) in excel
N =nper(0.0757865,0,-430000,1500000) = 17.10 Years
Number of years = 17 Years (Rounded to nearest whole number)
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