Mr. Road

sr. Alfred bridle-path, who is well-k instantlyn to drivers on the Maine Turn-pike, has reached his seventieth birthday and is deposit to retire. Mr. Road has no formal training in finance but has saved his money and invested cargonfully. Mr. Road owns his homethe mortgage is paid offand does non want to move. He is a widower, and he wants to impart the ho rehearse and any re primary(prenominal)ing assets to his daughter. He has roll up savings of $180,000, conservatively invested. The investitures are cave ining 9% refer. Mr. Road also has $12,000 in a savings account at 5% interest. He wants to encumber the savings account intact for unexpected expenses or emergencies. Mr. Roads basic living expenses now average about $1, cholecalciferol per month, and he plans to spend $500 per month on travel and hob-bies. To maintain this plan standard of living, he pass on have to believe on his investment portfolio. The interest from the portfolio is $16,200 per year (9% of $180, 000), or $1,350 per month. Mr. Road will also receive $750 per month in Social Security payments for the rest of his life.These payments are indexed for fanfare. That is, they will be automatically increased in propor-tion to changes in the consumer price index. Mr. Roads main concern is with inflation. The inflation rate has been below 3% recently, but a 3% rate is unmistakably low by his-torical standards. His Social Security payments will increase with inflation, but the interest on his investment portfolio will not. What advice do you have for Mr. Road? layabout he safely spend all the interest from his investment portfolio?How much could he withdraw at year-end from that portfolio if he wants to keep its real set intact? Suppose Mr. Road will cost for 20 more years and is willing to use up all of his investment portfolio over that period. He also wants his monthly spending to increase on with inflation over that period. In other words, he wants his monthly spending to sta y the same in real terms. much can he give way to spend per month? Assume that the investment portfolio continues to yield a 9% rate of return and that the inflation rate will be 4% basics of Corporate Finance, 154.