Ravi,age 42 has $250,000 saved and plans to retire at age 67.Ravi is saving an additional $10,000 each year from 42 until retirement.Ravi's asset allocation is 65% stocks and 35% bonds.The investment return on stocks is 6% and the return on bonds is 3%.Calculate the amount of financial assets Ravi will have at retirement.
A)$1,310,562
B)$1,621,613
C)$888,037
D)$1,093,791
E)$1,197,011

Question

Quizplus · Accepted Answer

Ravi's initial savings of $250,000 will grow, and he will also add $10,000 each year. The overall return is a weighted average of the returns on stocks and bonds, which is (0.65*6% + 0.35*3%) = 4.95%. Using the formula for the future value of a series for the annual savings and the future value of a lump sum for the initial savings, the total amount at retirement can be calculated. The correct calculation leads to a total of approximately $1,310,562.

Ravi,age 42 Has $250,000 Saved and Plans to Retire at Age