Please show how you arrive at answer. Due 3/3/17
1. Ms. Lloyd who is 25 and expects to retire at age 60 has just been hired by the Chambers Corporation. Ms. Lloyd’s current salary is $30000 per year but her wages are expected to increase by 5 percent annually over the next 35 years. Chambers 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 Ms. Lloyd’s expected annual retirement benefit rounded to the nearest thousands of dollars? a. $35000
b. $57000
c. $89000
d. $116000
e. $132000
2. Kumar Consulting 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?
a. 0.75%
b. 0.15%
c. 0%
d. 0.15%
e. 0.75%