- Read (carefully) sections 11.1 and 11.2 of chapter 11
- Revise Tim’s Retirement Plan to take probabilities into account.
- Assume the salary increase will have a normal distribution with a mean of 4% and a standard distribution of 1%
- Assume the annual rate of return will follow at table as follows
- 10% chance it will be 2%
- 20% chance it will be 3%
- 40% chance it will be 4%
- 20% chance it will be 5%
- 10% chance it will be 6%
- Assume he will contribute between a random uniform distribution between a minimum of 4% and a maximum of 8%
- Run 1000 simulations
- Prepare a Summary statistics for the amount Tim will have at retirement age of 65
- Prepare a bin covering the max and min of the amount Tim could have at 65
- Prepare a chart ( histogram) showing the frequencies of the amounts in each bin.
Will Tim reach his retirement goal? And if not, what recommendations could you offer
Sample Solution
