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TEST 3 - 2(10 points If Anita says that she can invest...

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NAME___________________________ Time Value Quiz Fall 2007 Please don’t forget to put your name on the answer sheet. You should show any work (this would be some explanation plus the buttons you pushed to get the answer), or no credit! 1) (20 points) Anita Lottabucks is presently 35, and hopes to retire at age 62 and live to age 87. She estimates that her salary at that time will be $90,000, and as her Financial Planner you inform her that she will need 90% of her salary each year for living expenses. After considering her willingness to accept risk, you and Anita feel that she can invest at 9% before retirement, but that after retirement she should invest more conservatively, and will only make 7%. a) Compute the amount Anita will need on the day she retires. b) Compute the amount Anita must invest each year to achieve that amount.
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Unformatted text preview: 2) (10 points) If Anita says that she can invest $10,000.00 / yr, compute the rate of return she must make in order to be able to retire at age 62. 3) (10 points) Anita is concerned about the effects of inflation during her retirement phase. Compute the amount Anita will need on the day she retires if she wishes to maintain her retirement purchasing power in the face of 2% inflation. 4) (10 points) Anita’s history of investment returns is: Year 1 2 3 4 5 % 15% 2% 25% 30% 2% Compute Anita’s realized rate of return. 5) (10 points) Anita suddenly remembers that she also wants to leave $100,000 to her favorite nephew. Compute the amount Anita will now need on the day she retires (ignore inflation)...
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