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Midterm1_spring08 - 1 After graduating from UCSB you...

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1) After graduating from UCSB, you remembered the advice from your Econ134a Professor and immediately starting saving for retirement, which you expect to be 30 years from now. You started to carrying out this retirement plan: Invest $700 a month in a Stock Account Invest $300 a month in a Bond Account The return to the Stock Account is expected to be 11% and the Return to the Bond Account is expected to be 7%. Both rates are Stated Annual Rates. When you retire, you will combine the money you accumulated in the two Accounts and put it in an Account earning 9% (Stated Annual Rate). If you plan to make monthly withdrawals for 25 years from this Account, how much will be the value of those withdrawals?
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2) After graduating, you were hired by the prestigious Rosario, Cho and Lang Inc. This firm is one of the top firms in stock value analysis. You are asked to analyze the stock of Santa Barbara Technologies Corp. The firm just announced that its latest Earnings per share are $10. They re- invested all of it in the firm’s operations. They also made the additional announcements: The Firm will retain 100% of the next 5 Earnings After that, the Firm will start paying 40% of Earnings as Dividends Currently, and for the first phase in their business activity, the Return on the Funds re-invested will be 20%. When the second phase of their activity starts, the Return of the Funds re-invested will drop to 15%.
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