How much can Mr. X afford to spend per month?
Not what you're looking for?
Mr. X who is 70 & ready to retire. Owns home, mortgage paid off. He has accumulated savings of $100,000, invested yielding 9% interest & a $10,000 savings account @ 5% interest. Savings account is for emergency expenses only. He would like to spend $1,000 for living expenses and $300 monthly for travel. To live he will rely on his investment. Interest from investment is $9,000 per yr or $750 monthly. He will also receive $750 monthly in social security payments for the rest of his life, which increases with an inflation rate of 4%. It is assumed that the investment continues to yield @ 95 rate of return. Mr. X is expected to live for the next 20 years and use up all of his investment over that period. I need help in how to solve this problem to determine if what kind of advice to give Mr. X. How much can he afford to spend per month?
Purchase this Solution
Solution Summary
The expert determines how much Mr. X can afford to spend per month.
Solution Preview
Number of months = 20*12 = 240
FV1 =$100,000
Yield rate = 9%
Since the yield rate is the same as the required return rate, the PV of the saving account is
PV1 = 100,000
FV2 = 10,000
Interest rate = 5%
Monthly interest income = ...
Purchase this Solution
Free BrainMass Quizzes
Basics of corporate finance
These questions will test you on your knowledge of finance.
Marketing Management Philosophies Quiz
A test on how well a student understands the basic assumptions of marketers on buyers that will form a basis of their marketing strategies.
Lean your Process
This quiz will help you understand the basic concepts of Lean.
Team Development Strategies
This quiz will assess your knowledge of team-building processes, learning styles, and leadership methods. Team development is essential to creating and maintaining high performing teams.
Academic Reading and Writing: Critical Thinking
Importance of Critical Thinking