Simulate Amanda's Portfolio Over the Next 30 Years and Determine

question 9

Essay

Simulate Amanda's portfolio over the next 30 years and determine how much she can expect to have in her account at the end of that period.At the beginning of each year,compute the beginning balance in Amanda's account.Note that this balance is either 0 (for year 1)or equal to the ending balance of the previous year.The contribution of $5,000 is then added to calculate the new balance.The market return for each year is given by a normal random variable with the parameters above (assume the market returns in each year are independent of the other years).The ending balance for each year is then equal to the beginning balance,augmented by the contribution,and multiplied by (1+Market return).
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Next,suppose Amanda's broker thinks the stock market may be too risky and has advised her to diversity by investing some of her money in money market funds and bonds.He estimates that this will lower her expected annual return to 10% per year,but will also lower the standard deviation to 10%.Suppose again that Amanda will stop investing in the stock market and transfer all of her retirement into a savings account if and when she reaches $500,000.When can she expect to reach this goal under the more conservative investing strategy?

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Definitions:

External Locus Of Control

The belief that one's achievements or failures result from external factors, forces, or luck rather than one's own actions or efforts.

Organization

An arranged group of individuals aimed towards achieving particular goals and objectives, often structured in a specific way to facilitate coordination and efficiency.

Personal Life

Aspects of a person's existence that are primarily private, personal, and not related to their public or professional roles.

Achievement Behaviors

Achievement behaviors are actions taken by individuals aimed at accomplishing specific goals, demonstrating a drive for success and mastery over tasks.