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F4 Group

The document presents three financial questions regarding investment options and retirement savings. The first question compares an annuity and a perpetuity under different interest rates, the second question involves calculating the future value of retirement savings based on annual deposits, and the third question estimates the present value of a pension plan with increasing payments. It suggests using an Excel template for calculations.

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jolietong05
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4 views1 page

F4 Group

The document presents three financial questions regarding investment options and retirement savings. The first question compares an annuity and a perpetuity under different interest rates, the second question involves calculating the future value of retirement savings based on annual deposits, and the third question estimates the present value of a pension plan with increasing payments. It suggests using an Excel template for calculations.

Uploaded by

jolietong05
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Friday 4 - Group

Q1.

Suppose you are given a choice of the following two securities:


(1) Bryce offers an annuity that offers 6 payments of $15,000 one year apart from each other.
They start a year from today.
(2) David offers a perpetuity that pays $15,000 forever, but the first cash payment is 11 years
from today.

Do you take Bryce’s annuity, or David’s perpetuity if the annual interest rate is 7%?
Does your answer change if the interest rate is 13%?

Q2.

Today is your 24th birthday and you decide to start saving for your retirement. You plan to save
$2,000 at the end of each year (so the first deposit will be one year from now) and will make the
last deposit when you retire on your 65th birthday. Suppose you earn 8.5% per year on your
retirement savings.
a) What is the value of your retirement position right after you completed your last deposit?
b) How much will you have saved if you wait until your 35th birthday to start your deposits?

Q3:

Consider you are a member of a pension plan. Your first retirement payment of $60,000 is in 30
years, and the plan allows you to withdrawal once a year, for 35 years. An effective annual rate
of 8.00% is appropriate. In addition, your payments will rise by 3.00% per year over your
withdrawal period.

What is the value today of your expected retirement position?

HINT: USE THE EXCEL TEMPLATE FROM THE MASTER TEMPLATE FILE

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