Jill thinks she will retire at 65 and given her family famous longevity, expects
ID: 2984967 • Letter: J
Question
Jill thinks she will retire at 65 and given her
family famous
longevity, expects to live another 30 years after
that. She thinks she would like to have $100,000 a
year in retirement income in real terms (inflations adjusted) and
thinks she can earn a real rate of return of 4% on her
investments. How much should she have in her
retirement account when she reaches 65?
a.$900,000
b‚ $1.565,000
c$1,730,000
d. $1,960,000
e.$2,410,000
2.  Â
  Jill thinks she will be able to
save for retirement for the next 25 years. She
thinks she can be a little more aggressive in her investment years
in choice of investment and could earn a real rate of interest on
her retirement savings of 4.5%. If she wants to have
the funds available on retirement in the questions above, how much
should she invest every year?Â
a
$25,900
b.$32,700
c.$38,800
d. $42,500
e. $50,300
What if Jill thought a more realistic real rate of return for
her after she retires would be 3% than 4%. What does
she need to have on hand at retirement?Â
a$900,000
b. $1,565,000
c.$1,730,000
d. $1,960,000
e.2,410,000
Jill, in addition to reducing her earning assumption in her
retirement years to 3%, also reduces her estimate of earning for
her investment years down to 3.5%. What should be
her retirement saving every year in working life?Â
a.25,900
b. $32,700
c$38,800
d.‚ $42,500
E.$53,700
For the Next 3 Questions: What if the bond in the previous two
questions was not a bullet maturity interest bond, but a
mortgage-style amortizing bond. Assuming that the
original maturity was 30 years, and the coupon rate was 8%, and the
bond sold for $1,000:Â
What would be the annual payment on
the bond that company has to make?Â
What would be the value of the
mortgage-style amortizing bond now that is 15 years left to
maturity if the market interest rate is 6%?
What would be the value of the
mortgage-style amortizing bond now that is 15 years left to
maturity if the market interest rate is 10%?Â
For the Next Two Questions: Schnusenberg Corporation just paid a
divide of D0=$0.75 per share, and the dividend is expected to grow
at a constant rate of 6.50% per year in the future.Â
The companyà ¢Ã¢â€š ¬Ã¢â€ž ¢s
beta is 1.25, the required rate of return on the market is 10.50%
and the risk-free rate is 4.50%.Â
What is the expected rate of return
on the equity for this stock?Â
What is the current stock
price?Â
Explanation / Answer
Using a BA II financial (if you want the inputs let me know).
1. 1,730,000 (c)
2. 38,800 (c)
3. 1,960,000 (d)
4. 53,700 (e)
5. 88.83
6. 862.74
7. 675.65
8. 4.5 +1.25 (10.5-4.5)= 12.0
9. .75*(1.065)/(.12-.065)= 14.52
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