Problem 1:

How much will an employee's portfolio be worth after working for the company 30 years more? The Human Resource department at EcoCarnifex Corporation was asked to develop a financial planning model that would help employees address this question. Frank Joseph was asked to lead this effort, and he has decided to begin developing a financial plan for himself first. Frank has a degree in business and at the age of 30 in 2017. At the beginning of 2017, he is making the annual salary $35,000 and has accumulated a portfolio valued at $16,000.

Frank made the following assumptions:

a) 5% annual salary growth at the end of each year is reasonable.

b) He plans to contribute 5% of his monthly salary throughout each year.

c) 10% annual portfolio growth seems reasonable.

(1) Develop an Excel worksheet that calculates and shows the value at the end of each year of Frank's portfolio after he will work for the company 35 years more (i.e., at the end of 2051).

(2) If Frank plans to work for the company 30 years more instead and hopes to accumulate a portfolio valued at $1,000,000 for his retirement by the end of 2046. Can he do it? Why or why not. Please explain in detail. If not, what he should do?

Frank has presented his findings based upon the above assumptions to his boss, but his boss does not agree with it. Instead his boss made the following assumptions.

a) The annual salary growth should not be constant. It should vary from 0 to 9% following a uniform probability distribution.

b) The annual portfolio growth rate should be approximated by a normal probability distribution with a mean of 7% and a standard deviation of 5%.

(3) Develop an Excel worksheet with this new information and then use @Risk to perform this simulation (using 800 iterations) that calculates and shows the value at the end of each year of Frank's portfolio after he will work for the company 35 years more (i.e., at the end of 2051).

(4) Based on (3), can Frank accumulate a portfolio valued at $1,100,000 for his retirement by the end of 2046? Why or why not. Please explain in detail.

(5) Attach the simulation graph result at the end of 35 years more as an output.

(6) Based upon the graph result, what is the probability that Frank will have at least $900,000 of his portfolio value for his retirement at the end of 2051?

Note that Part 1 and Part 3 solutions must be separated.