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Stefani German, a 40-year-old woman, plans to retire at age 65, and she wants to...

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Accounting

Stefani German, a 40-year-old woman, plans to retire at age 65, and she wants to accumulate
$480,000
over the next
25
years to supplement the retirement programs provided by the federal government and her employer. She expects to earn an average annual return of about
4%
by investing in a low-risk portfolio containing about
20%
short-term securities,
30%
common stock, and
50%
bonds.
Stefani currently has
$56,268
that at an annual rate of return of
4%
will grow to about
$150,000
by her 65th birthday (the
$150,000
figure is found using time value of money techniques, Chapter 4 Appendix.) Stefani consults a financial advisor to determine how much money she should save each year to meet her retirement savings objective. The advisor tells Stefani that if she saves about
$24.01
each year, she will accumulate $1,000 by age 65. Saving 5 times that amount each year,
$120.05,
allows Stefani to accumulate roughly $5,000 by age 65.
a. How much additional money does Stefani need to accumulate over time to reach her goal of
$480,000?
b. How much must Stefani save to accumulate the sum calculated in part a over the next
25
years?

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