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Spring 2015 FNAN 401 - HW #1 (Due Feb 12) 1. You are saving for retirement. You have decided that one year from today you will begin investing 10 percent of your annual salary in a mutual fund which is expected to earn a return of 12 percent per year (compounded quarterly). Your present salary is $30,000, and you expect that it will grow by 4 percent per annum throughout your career (consequently, your investment at time 1 will be $3,000, your investment at time 2 will be $3,120, etc.). You will retire 40 years from today. a) How much money will you have in your investment account at retirement (assume you make your last investment deposit 40 years from now on the day you retire)? b) At retirement, you shift your investment portfolio balance into a money market account earning 6% per year, compounded monthly. You would like to make an equal monthly withdrawal from this money market account over the next 20 years (first withdrawal beginning one month into retirement at time 40 + one month). What equal, monthly amount can you withdraw from the account so that at time 60 (20 years into retirement) your money market account balance is reduced to $0?

2. a) What is the value today of receiving $1,000 every other year, forever? The first payment is received one year from today, and the appropriate discount rate is 7% per year, compounded semi-annually. b) What is the value today if the first payment is received two years from today?

3. Xenon Super-Graphics, Inc. is a small, start-up computer software company. The firm presently pays no dividends. However, seven years from today, the company is expected to begin paying a dividend of $1.00 per share. This dividend is expected to increase by 20% for one year and then by 5% per year, thereafter. Based upon risk, this type of investment requires an expected…...

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