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1.) You sit on the board of directions of local nonprofit corporations .At its last meeting, the board decided to begin to fund a very modest retirement pension for the organization's custodian. The details of the plan areas as follows: The custodian is thirty nine years old, the plan will begin to make annual payments to him twenty six years from the date when funding for the plan begins. You assume the custodian will continue his employment with the corporation. When payments begin, the custodian will receive a single cash payment each year for fifteen years. The first payment will be $ 5,000 and each succeeding payment will increase by 4 percent. Payments stop after the fifteenth payment. Money paid into the fund collects interest at a constant 8 percent annual rate, and there is no tax liability on the account. The annual contributions that the corporations makes to the fund will also increase 4 percent rate and will also earn 8 percent interest until withdrawn. As chair of the personal committee, you are responsible for determining the initial amount to fund this retirement stipend. If you If your figures are correct, all succeeding annual budget amounts will simply be increased 4 percent now to get the plan in motion? 2.)An annuity will make a payment of $ 100 in one year, this is the first of a series of twenty payments. If each succeeding annual payment is 5 percent larger than the previous one, what is the percent value of this annuity using a 12 percent discount rate? 3.) What is the future value of the annuity in problem 2. 4.)An investment will pay you $ 200 in one year and then pay annually,forever. Each payment will be 3 percent larger, then the previous one. If investment costs $ 2,500 what rate of return do you expect to earn. 5.) What is the present value of $ 1,000 perpetuity that makes the first payment five years from today? Assume a 6 percent interest rate. 6.)A stock just paid its annual dividend of $ 1: it has a dividend growth rate of 3.5 percent. What is the most you can pay for the stock to have an expected return of 14.0 percent.? 7.)A person wins $ 1 million in the state lottery. Actually the person receives $ 50,000 per year every September 1.Using a 10 percent discount rate and the bonds in the table, construct a cash matched dedicated portfolio that will serve this need. 8.) A$ 100,000 bond portfolio generates exactly $ 9,000 per year in income. Another $ 100,000 portfolio currently yields $ 7,000 per year in income, but this amounts expected to grow at 4 percent annually. In about how many years will the two portfolios yield equal amounts? 9.)A person is about to retire and must choose between three retirement plan options. One provides $ 55,000 per year for the remainder of his life. Another provides 85 percent of this amount and increases by 5 percent each year. A third option gives him a $ 400,000 lump-sum settlement If this remaining life expectancy is twelve years, the prime interest rate is 8 percent and he can ignore taxes, which should he choose? 10.) Would your answer to problem 9 be different if the prime interest rate were 15 percent and was expected to stay there for the foreseeable future? Table bonds list for problems 7 company Maturity Coupon % price Yield to years maturity % Abc 4 10 98 10.63 DEF 8 9 87 11.53 GHI 22 11 102 10.76 JKL 28 10 90 11.17

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