This preview shows pages 1–3. Sign up to view the full content.
York University
Economics 4400, Midterm Examination
February 7, 2008
Instructions.
Write your name and student number at the top of this page. Answer four out of
six questions below. Each question answered is worth 10 points, the total is 40 points.Be clear what
formulas you use to arrive at a solution, the actual numerical answers are not important. If you
think a question is ambiguous or not enough information is provided to answer it, explain why.You
have 75 minutes.
1. Person X starts saving for retirement at age 26, depositing $1,000 each year until retirement
at age 65. To diversity holdings, X deposits savings on three separate accounts. From age 26
to 35, X deposits his retirement savings at bank A, between ages 36 and 45 at bank B, from
from accounts until retirement.
(a) What are total values of the accounts at age 65 (in age 65 dollars). Give three separate
formulas for A, B, C.
(b) In retirement starting at age 66, X plans to spends equal amount
a
each year in perpetuity
(A plans to live forever). What
a
is a/ordable? Give formula.
(c) Suppose as before that X deposits $1,000 a year at bank A from age 26 to age 35 but
afterwards he plans his savings at B, C in such a way so that balance on each account
is the same when he retires at 65. How much per year should he deposit at B, C?
a.
A
=
$1000
r
h
1
1
(1+
r
)
10
i
(1 +
r
)
40
B
=
$1000
r
h
1
1
(1+
r
)
10
i
(1 +
r
)
30
C
=
$1000
r
h
1
1
(1+
r
)
20
i
(1 +
r
)
20
b.
a
r
=
A
+
B
+
C
c.
b
r
h
1
1
(1+
r
)
10
i
(1 +
r
)
30
=
$1000
r
h
1
1
(1+
r
)
10
i
(1 +
r
)
40
, solve for
b
c
r
h
1
1
(1+
r
)
20
i
(1 +
r
)
20
=
$1000
r
h
1
1
(1+
r
)
10
i
(1 +
r
)
40
, solve for
c
.
1
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
How will it a/ect BV and MV?
This is the end of the preview. Sign up
to
access the rest of the document.
 Spring '11
 A
 Economics

Click to edit the document details