Chapter 14 Questions

Question 1 (Assume that a pension plan offers to pay $300,000 on a person’s retirement (his/her sixty-fifth birthday) or a semi-annual annuity for the remainder of the person’s life– i.e.,starting 6 months from the date of retirement and including his/her date of death. Interest rates are 8 percentcompounded semi-annually , and a person’s life expectancy has been determined statistically as being 85 years. Calculate the amount of the annuity that would make a person indifferent between the options? Question 2  A person joins a pension plan at age 35. How much will she have to pay into the pension fund each year in order to accumulate a balance of $250,000 by the time s/he retires (age 65)? Assume that the payments start on his/her 35th birthday and the final payment is on his/her 60th birthday. Interest rates are 7% compounded annually. Question3 a) Laura Smith is planning for her and her husband Luke’s retirement. Both Luke and Laura expect to retire in 35 years (when they turn 65).…

When taxpayers receive distributions from qualified retirement plans, how much time is allowed to roll over the amount received into a new plan to avoid paying taxes on the distribution in the current year, assuming there are no unusual events? a. 60 days b. 90 days c. 180 days d. 1 year e. There is no time limit

How much will a registered retirement savings deposit of $23 700.00 be worth in 8 years at 6.54% compounded semiannually? How much of the amount is interest?

Q1. Your employer uses a flat benefit formula to determine retirement payments to its employees. The fund pays an annual benefit of $2,500 per year of service. Calculate your annual benefit payment for 25, 28 and 30 years of service.

Question 13 You have a 401(k) plan, which is used for retirement savings, at work. If you plan to invest $5,000 at the end of every year for 35 years until you retire, which formula would you use to determine how much you will have when you retire? O future value of an annuity due O present value of a lump-sum future value of an ordinary annuity present value of an ordinary annuity future value of a lump-sum Question 14 You deposit $3,250 into a savings account at a local bank. It will pay you 1.25% compounded monthly for 2 years. To determine how much you will have at the end of that time, which formula would you use? future value of an annuity due O future value of a lump sum O present value of a lump-sum future value of an ordinary annuity

Question 11 You deposit $5000 each year into your retirement account, starting in one year. If these funds earn an average of 5% per year over the 27 years until your retirement, what will be the value of your retirement account upon retirement? Your Answer: Answer

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Problem Outline Part A By the end of this year, you will be 35-years old, and you want to plan for your retirement. You wish to retire at the age of 65, and you expect to live 20 years after retirement. Upon retirement you wish to have an annual sum of $50,000 to supplement your social security benefits. Therefore, you opened your retirement account with a 7% annual interest rate. At retirement you liquidate your account and use the funds to buy an investment grade bond which makes $50,000 annual coupon payments based on a 6 % coupon rate throughout your retirement years.  What is the face value, not the actual value, of the bond that you will be investing in? Calculate the monthly payment in your retirement account to be able to achieve the plan mentioned above.  How much will your inheritors receive?  Problem Outline Part B Suppose you think if you were to retire right now, you would have needed $50,000 each year to supplement your social security and maintain your desired…

Suppose that at age 25, you decide to save for retirement by depositing $95 at the end of every month in an IRA that pays 4.25% compounded monthly. How much will you have from the IRA when you retire at age 65? Find the interest. A. $118,696; $73,096 B. $120,485; $62,735 C. $146,390; $100,790 D. $119,567; $73,967

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Choose the best retirement plan for the employee from among those presented below. Effective interest is 12.68% pa.a. P1.4M now b. P64,000/month for 2 years c. P1.65M on the 18th month d. P100,000/month for 1 year plus P400,000 after one year

You are a pension fund manager who has obligations over the years to come of: t: 1 2 3 5 CF: 6.5 7 2.5 13.5 The applicable rate is: 0.095 What is the modified duration of this pension obligation? O3.0977 3.3360 3.2050 2.9786 3.4361 13

Son.1   A pension plan must make total disbursements of $2.7 million, $3.7 million, and $2.7 million annually for the next three years, respectively. The fund makes these payments twice a year, paying half of each year's total amount six months into the year and the remaining half at the end of the year.Find the duration of the pension obligations if the term structure is flat at 10%.

Kal.4   Consider a retirement financial plan where you begin contributing at the age of 25. In this plan you make annual payment of $5000 until you reach the age of 50. Starting from the age of 60 and continuing until the age of 70, you receive annual payments of $15000 assuming an annual discount rate of 3% evaluate the worthiness of this financial plan.

How much must you deposit each year into your retirement account starting now and continuing through year 10 if you want to be able to withdraw $90,000 per year forever, beginning 29 years from now? Assume the account earns interest at 14% per year. The amount to be deposited is determined to be $________ .