Question

Question: Consider the savings plan described in slide 21.3 and recreated in the posted Portfolio Management Savings Plan Excel Worksheet. Suppose you want to increase the annual payment from your retirement annuity by 50%. Since you don’t want to work harder or save more, you decide to take more investment risk to reach your goal. Do you have to increase your investment rate of return (ROR) by less than 50%, exactly 50%, or more than 50%? Why?

Answer 1

Slide for question is not available but considering the normal investment logic, if we invest for a longer duration we tend to average out the risk over the period of time and these investments are market linked and market tends to give higher returns if you invest in for a longer duration, but when it comes to investing for a shorter duration portfolio needs to include more equity with higher returns.

Beta is calculated with a higher percentage. investment rate of return need to be increased by more than 50% because for example:

investment amount every year was 20000 for next 20 years and the expected rate of return is 8 %.

returns in such a scenario are always more secured and higher.

if you invest 40000 for 10 years and expect similar amount in return the rate of return needs to be more than 50%.