Reference no: EM13396104

Question 1.The Apex Company has just hired Mr. Smith, who is age 25 and is expected to retire at age 60. Mr. Smith’s current salary is $30,000 per year, but his wages are expected to increase by 5 percent annually over the next 35 years. Apex has a defined benefit pension plan in which workers receive 2 percent of their final year’s wages for each year of employment. Assume a world of certainty. Further, assume that all payments occur at year-end. What is Mr. Smith’s expected annual retirement benefit, rounded to the nearest thousands of dollars?

Question 2.Midwest Investment Consultants (MIC) operates several stock investment portfolios that are used by firms for investment of pension plan assets. Last year, one portfolio had a realized return of 12.6 percent and a beta coefficient of 1.15. The average T-bond rate was 7 percent and the realized rate of return on the S&P 500 was 12 percent. What was the portfolio’s alpha?

Question 3.The Ritz Company has a 40-year-old employee that will retire at age 60 and live to age 75. The firm has promised a retirement income of $20,000 at the end of each year following retirement until death. The firm’s pension fund is expected to earn 7 percent annually on its assets and the firm uses 7% to discount pension benefits. What is Ritz’s annual pension contribution to the nearest dollar for this employee?

------------------------

Solution file contains solutions in Excel and word both format with necessary formulas and calculations.