Case 1. The Hernandez Family Has Some Investment Questions

In recent years, the Hernandez family has been saving toward retirement, which Victor and Maria plan to begin in eight years. Through payroll deductions, Victor now has $25,000 saved at his credit union. Maria has put away $10,000 from her part-time employment. These amounts are in addition to Victor’s investments through the retirement plan offered by his employer. Thinking that the past performance of various industries might be a fairly good predictor of earnings in the future, they seek your advice on where to invest the funds. They expect to sell some of the investments immediately after their retirement begins to have money for living expenses.

Directions: Fill in the fields below to submit your solution to this case.

1. Suggest to the Hernandez family three industries that have had successful earnings in recent years (see Figure 16.1).


2. Give your personal opinion on why those industries might be successful in the future decade.


3. Briefly tell the Hernandezes how and when to obtain information about those industries and particular companies.


4. If their $35,000 investment earns an annual return of 6 percent, what will be the future value of the investment after eight years? (Hint: Use Appendix A.1 or the calculator .


5. Assume that the $35,000 grows to $70,000 by the time that Victor and Maria retire and that it will continue to earn a return of 8 percent annually. If they plan on living an additional 20 years, how much can they withdraw each year so that the fund will be liquidated only after 20 years? (Hint: Use Appendix A.4 or this calculator from interest.com.


   

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