At the age of 30, Morgan decided to create a financial plan to retire in 25...

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At the age of 30, Morgan decided to create a financial plan toretire in 25 years. He had the following retirement objectives:
? Home purchase objective: Own a home worth at least $1,200,000with no mortgage.
? Vacation objective: Have an amount of $45,000 for a Europeantour.
? Monthly allowance objective: Receive a month-beginningallowance of $2000 for 20 years after retirement.
He created the following financial plans to achieve the aboveretirement objectives. Answer the questions related to eachplan.
Plan to achieve his home purchase objective
Assuming that the value of a property in a Toronto suburb woulddouble over 25 years, Morgan would purchase a house worth $600,000by making a down-payment of $30,000 and obtaining a mortgage forthe balance amount from a local bank at an interest rate of 4%compounded semi-annually for 25 years.
a. If the interest rate is constant over the25-year period, calculate the month-end payments for the mortgage.What would be his total investment in the house over the term?
Plan to achieve his vacation objective
Deposit $150 at the end of every month for ten years into asavings account that earns 3% compounded monthly. At the end of theten years, transfer the accumulated money into an investment fundthat earns 6% compounded quarterly, and allow the money to grow inthis fund until retirement.
b. How long (in years and months) would it taketo accumulate the required amount of $45,000 to pay for hisvacation?
c. To ensure that the amount accumulates toonly $45,000 at the time of retirement, by how much should hechange his monthly deposit?
Plan to achieve his monthly allowanceobjective
He will save $500 at the beginning of every month untilretirement in an RRSP that has an interest rate of 5.4% compoundedmonthly.
d. What would be the accumulated value of theRRSP at the time of retirement?
e. For Morgan to be able to withdraw $2000 fromthe RRSP at the beginning of every month during his planned 20-yearretirement period, what does the nominal interest rate, compoundedmonthly, need to change to, assuming the interest rate during the25-year savings period remains unchanged at 5.4% compoundedmonthly?

Answer & Explanation Solved by verified expert

4.4 Ratings (757 Votes)

Part a Payment frequency is monthly Hence a period here is one month Hence wee need interest rate per month Lets say itr then following equation should be satisfied 1 r12 1 4 22 10404 Hence Rate r 10404112 1 03306 Nper nos of months in 25 years 12 x 25 300 Loan amount 600000 30000 570000 Hence monthly payment PMT Rate Period PV FV PMT See Answer

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At the age of 30, Morgan decided to create a financial plan toretire in 25 years. He had the following retirement objectives:? Home purchase objective: Own a home worth at least $1,200,000with no mortgage.? Vacation objective: Have an amount of $45,000 for a Europeantour.? Monthly allowance objective: Receive a month-beginningallowance of $2000 for 20 years after retirement.He created the following financial plans to achieve the aboveretirement objectives. Answer the questions related to eachplan.Plan to achieve his home purchase objectiveAssuming that the value of a property in a Toronto suburb woulddouble over 25 years, Morgan would purchase a house worth $600,000by making a down-payment of $30,000 and obtaining a mortgage forthe balance amount from a local bank at an interest rate of 4%compounded semi-annually for 25 years.a. If the interest rate is constant over the25-year period, calculate the month-end payments for the mortgage.What would be his total investment in the house over the term?Plan to achieve his vacation objectiveDeposit $150 at the end of every month for ten years into asavings account that earns 3% compounded monthly. At the end of theten years, transfer the accumulated money into an investment fundthat earns 6% compounded quarterly, and allow the money to grow inthis fund until retirement.b. How long (in years and months) would it taketo accumulate the required amount of $45,000 to pay for hisvacation?c. To ensure that the amount accumulates toonly $45,000 at the time of retirement, by how much should hechange his monthly deposit?Plan to achieve his monthly allowanceobjectiveHe will save $500 at the beginning of every month untilretirement in an RRSP that has an interest rate of 5.4% compoundedmonthly. d. What would be the accumulated value of theRRSP at the time of retirement?e. For Morgan to be able to withdraw $2000 fromthe RRSP at the beginning of every month during his planned 20-yearretirement period, what does the nominal interest rate, compoundedmonthly, need to change to, assuming the interest rate during the25-year savings period remains unchanged at 5.4% compoundedmonthly?