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Dusty Jones is 23 years old and has accumulated $4,000 in her self-directed defined contribution pension...

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Accounting

Dusty Jones is 23 years old and has accumulated $4,000 in herself-directed defined contribution pension plan. Each year shecontributes $2,000 to the plan, and her employer contributes anequal amount. Dusty thinks she will retire at age 67 and figuresshe will live to age 81. The plan allows for two types ofinvestments. One offers a 3.5% risk-free real rate of return. Theother offers an expected return of 10% and has a standard deviationof 23%. Dusty now has 5% of her money in the risk-free investmentand 95% in the risky investment. She plans to continue saving atthe same rate and keep the same proportions invested in each of theinvestments. Her salary will grow at the same rate as inflation.How much can Dusty be sure of having in the safe account atretirement?

A: 37,221

B: 16,423

C: 11,856

D: 21,156

E: 49,219

Answer & Explanation Solved by verified expert
3.7 Ratings (596 Votes)
Answer is 21156 Working is as follows year Opening Addition Interest Closing 1 20000 20000 700 40700 2 40700 20000 1425 62125 3 62125 20000 2174 84299 4 84299 20000 2950 107249 5 107249 20000 3754 131003 6 131003 20000 4585 155588 7 155588 20000 5446 181034 8 181034 20000 6336    See Answer
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