FNCE 100 Midterm Spring 2005 with Solutions (3) - The...

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The Wharton SchoolProfessor Jeffrey JaffeSpring 2005Corporate Finance 100Midterm ExaminationInstructions:Please read the exam instructions carefully. After you read the instructions please print your name and student ID and signthe exam at the bottom. Please do not open the exam until you are told to do so. The exam is administered under the University’s rules of academic conduct; the Code of Academic Integrity applies. To ensure the fairest possible chance for everyone, the following procedure will be used:a) No one may leave the room during the last 10 minutes of the examination period. b) When time expires, remain seated and silent. Pass your exam to the nearest aisle.c) Anyone seen writing after time expires will forfeit 20 points.Only the front sides of pages will be graded; the backsides of pages may be used for ungraded scratch paper. THE BACKSIDE OF PAGES WILL NOT BE COUNTED; DO NOT WRITE YOUR ANSWERS THERE. Answers will not receive full credit unless you show correct supporting work including any necessary assumptions. The exam is closed book, but you may use a calculator and both sides of an 8.5” x 11” inch sheet of notes. No other notes, books, or aids are allowed. Answer all questions for a possible 100 points. The times besides the questions add up to 1 hour 40 minutes; these are intended only to help allocate your time. You have 2 hours. Only written re-grade requests submitted with a completely unaltered exam paper can be considered.If you use your calculator, please provide inputs so that we may provide partial credit where appropriate.Please Enter the First 3 Letters of your Last Name:Your Name: ______________________________________________________________Your Student ID Number: __________________________________________________Signature: ________________________________________________________________Good Luck!!!!!!!
The Wharton SchoolProfessor Jeffrey JaffeSpring 2005Question # 1(20 Points)Bob just turned 30 years old today, but he can’t wait to retire in 20 years. He wants to create a pension plan that will pay him $100,000 per year in real terms (today’s dollars) beginning on his 51stbirthday and lasting for 30 years (last payment to be made on his 80th birthday). He would like to make equal annual contributions in real terms beginning on his 31stbirthday and ending on his 50thbirthday. The nominal interest rate is 8% and inflation is expected to be 3% a year throughout this time period.(a)(7 points) How much money must Bob have saved in real dollars by his 50thbirthday in order to support his pension plan?(b)(7 points) What real payment must he contribute each year during his working life?(c)(6 points) What is the nominal dollar amount of the first benefit payment he will receive(on his 51stbirthday)?Solution:

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