Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

1. Introduction to Accounting

Useful Information

Financial Accounting

1. Introduction to Accounting

Useful Information

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Multiple Choice

Why does the amount you need to save for retirement increase from $1.5$ million to over $2.1$ million in this example?

Because the expected rate of return on investments decreased, requiring a higher principal to achieve the same retirement income.

Because the inflation rate decreased, increasing the purchasing power of money.

Because the annual retirement spending was reduced, requiring more savings.

Because the retirement age was lowered, reducing the number of years to save.

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Verified step by step guidance

Understand the relationship between the expected rate of return and the principal amount needed for retirement. When the expected rate of return decreases, the principal amount required to generate the same retirement income increases. This is because lower returns mean the investments grow at a slower pace, requiring a larger initial amount to meet future needs.

Analyze the impact of inflation on purchasing power. If the inflation rate decreases, the purchasing power of money increases, meaning less money is needed to maintain the same standard of living. However, this does not explain why the savings requirement increased in this example.

Consider the effect of annual retirement spending. If annual spending decreases, logically, less savings would be required to fund retirement. This option does not align with the scenario where the savings requirement increased.

Evaluate the impact of lowering the retirement age. Lowering the retirement age reduces the number of years available to save, which can lead to an increase in the required savings amount to ensure sufficient funds for retirement.

Conclude that the most plausible explanation for the increase in required savings from $1.5$ million to over $2.1$ million is the decrease in the expected rate of return on investments. This directly affects the growth potential of the savings and necessitates a higher principal to achieve the same retirement income.