Suppose your investments earns 6.00%, how much can you withdraw each month?
5. Tom decides to get an early start on retirement saving and, beginning at age 22, he invests $4,000 per year in a Roth IRA for 10 years in a row. At that point, he stops contributing to the account but leaves the money invested until age 65 (a period of 33 years). Harry doesn’t start investing until he’s 32 but from then on invests $4,000 in a Roth IRA each year for 33 years until retirement at age 65. If both men earn 9.875 percent per year on their investments, compounded annually, what are their final account values? Who has accumulated more money? How much more?
6. You bought 400 shares of XYZ over a year ago at $56.25 per share. During the year, you received $0.80 in dividends per share. XYZ is now worth $62.50 per share. What is your pretax rate of return? If you’re in the 25 percent federal income tax bracket and your dividends and capital gains both qualify for taxation at the long-term capital gains tax rate (15%), what is your after-tax rate of return?
7. You have 18 years to accumulate $140,000 for your child’s college education. How much do you need to save each month if you can earn 4.0 percent annually after taxes on your investment? How much do you need to save each month if you can earn 6.45 percent after taxes on your investment?