IRA Investment

IRA Investment

1. You plan to invest $3,000 per year in an IRA for the next 30 years. You would like to know the effect of investing this money into three different mutual funds. The investments are all made at the beginning of each year. Investment (1) into Certificates of Deposits averages 5 percent per annum. Investment (2) into a Blue Chip Mutual Fund averages 9 percent per annum. Investment (3) into an S & P 500 Index Fund averages 15 percent Annum.

The effects of investing $90,000 in $3,000 annual increments at the beginning of each year for 30 years would be as follows:

2. You have won the sweepstakes and are offered the option of receiving either $50,000,000 today or $12,000,000 at the end of each of the five years. Ignoring taxes and assuming a discount rate of 12 percent which option would you prefer? Please show your work.

The choice would be to take a $50,000,000 lump sum payment today, as the $60,000,000 paid in five annual increments would have a net present value today of only $43,260,000 (as illustrated below).

3. Anchorage Airport wants to retire a $30,000,000 Revenue Bond in five years. The Airport manager plans to make five equal year-end payments to an account that pays 9 percent interest starting with the first installment, beginning one year from today. How large is each installment?

The annual payments to provide the $30,000,000 in five years are as follows:

4. GCI Corporation plans to introduce a new design called the Executive Connection. The expected returns depend on the degree of market acceptance of the new design.

Please calculate the following statistical parameters.

a. Calculate the expected value of the returns.

b. Calculate the standard deviation of the returns.

Standard Deviation of Value of Returns: 3%

5. If you place $100,000 in a savings account paying 2% interest compounded annually, how much will your account accrue in 10 years, 20 years, and 30 years?

6. How many…

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