Chegg:

Wage replacement ratio=Income after retirement/Income before

retirement=64000

1. It is realistic to use wage replacement ratio because steve will get to know the
annual income after retirement. Basically wage replacement ratio is nothing but
a measure of annual income after retirement to annual income before
retirement.

2.
3) Looking at his current resources , he doesnot has sufficient funds to reach his
retirement goal.

4) Steven needs to diversify his investment profile. He needs to invest in Mutual

funds, certificate of deposits, Money markets & treasury bills.

5.) Using method 1, Steven would need $1,061,342.08 in order to retire at 68.

6.) Using method 2, Steven would need $1,317,564.25 in order to retire at 68.

7.) Capital preservation method is an investment strategy that allows to preserve

capital & stop loss in portfolio. The only draw back in capital preservation
method is that this method neglects inflation. In short term, inflation has a no
significant impact however in longer term, inflation tends to diminishes the
value of investment that is invested in specific saving instrument. The Savings
instrument used in this case could be certificates of deposits and treasury bills.

On the other hand, purchasing power method is an investment strategy that

allows protection in purchasing power for those individuals who are arriving at
their retirement. This achieved by investing in savings instrument that curbs
inflation in the future. The Bonds and ETS are two best saving instruments that
help curbing inflationary effects at the same time provide good returns

8.) The advantage of investing in the CDs and treasury bills are that capital is
preserved & there are less chances of default since these instruments are risk
free in nature. However these are not best instruments to fight inflation.
However the advantage of investing in bonds, ETS and mutual funds are that one
can expect good returns and can fight inflation. However, both ETFs and mutual
funds carry market risks whereas bonds carry default risk. Hence there is always
some problems in redemption of these instruments