PS2_H - retires and so is planning to start a retirement...

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Problem Set 2 (Harder Questions) 1. Paulo Gattuso was cut by his team before the NFL draft. He has been playing football for 8 years and suffered an injury towards the middle of the last season and has since been in rehab. He is now likely to be a back-up middle linebacker rather than a starter. Although this is a little hard on him, he is for the most part OK with this role. He has gotten the following three offers: Ravens Quarter of a million signing bonus plus $800,000 for the first two years and $600,000 for years 3 and 4 Chiefs A million dollar signing bonus and half a million dollars for each of the first three years Packers A signing bonus of $200,000 plus $750,000 for the first 2 years and $400,000 for the following three years Except for the signing bonus, assume all cash flows to be at the end of the year. Assume Paulo’s opportunity cost to be 7%. Which of the teams is offering him the most cash flow? 2. Janet Hammermiester just turned 30. She plans to be financially independent when she
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Unformatted text preview: retires and so is planning to start a retirement plan. Janet expects to contribute $3000 at the end of year 1 and her contribution into the plan to increase by 1% each year. She plans on retiring at the age of 65 (so she expects to make contributions into the plan for 35 years). The pension plan is expected to generate a return of 8% each year. She comes from a family blessed with long lives and so she is expecting to live for 25 years after she retires. The pension plan that she is looking into offers a deal where the sum-total of the retirement money can be turned into an annuity that lets her withdraw the lump-sum she has at the time of retirement over 25 equal installments if she agree to a return of 5% each year. What will Janet be able to get each year starting with her 66 th birthday till her 90 th birthday?...
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This note was uploaded on 04/05/2011 for the course FIN 320 taught by Professor Yatin during the Winter '07 term at Grand Valley State University.

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