Personal financial planning.

Abstract

The advantage of introducing the mathematical formulations is that students who understand it will be more likely to properly enter numbers in financial calculators, or set up a spreadsheet correctly. The authors extend the formula to retirement planning. In one example (pp. 52-53), they show that given $5,000 annual savings, an investor would have to earn a 24% rate of return in order to reach his goal. Obviously (although not necessarily to students who have only experienced bull markets) that is an unrealistic projection, so what can he do? The authors point out that he can change his goal, change the initial investment, increase his annual savings, or change his investment horizon. An instructor might point out that the phrase “change his investment horizon” in this example means delaying the planned age of retirement.