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A stock you bought six years ago at $42 a share had the following year-end prices and dividends.
A stock you bought six years ago at $42 a share had the following year-end prices and dividends.
Year Price Dividend
1 $48.27 $0.00
2 53.84 0.57
3 57.75 0.62
4 54.21 0.68
5 62.09 0.77
6 71.83 0.84
1 $48.27 $0.00
2 53.84 0.57
3 57.75 0.62
4 54.21 0.68
5 62.09 0.77
6 71.83 0.84
Using Blume’s formula, estimate the future annual returns over the next two years.
B. John & Jane, both 37 years old, are celebrating their 10th wedding anniversary today and they want to strengthen their retirement savings plans. Their desired retirement age is 67 with full Social Security benefits.
John’s current year salary is $110,000 and is expected to grow 5% a year until his retirement (i.e., growing annuity). He has made contributions to a (tax-exempt) Roth 401-(k) plan and its current balance is $85,000. John plans to contribute 7% of his annual salary by the end of each year. He will also receive additional 3% contributions from his employer, so he can save 10% of his salary by the end of each year for the next 30 years (i.e., age 66). He expects that his account will earn 8% return each year.
Jane is a home-maker, but she has saved money on her Roth IRA account. Her account balance is $40,000 now and she plans to contribute $5,000 at the end of each year for the next 30 years. She expects her account to earn a 6% a year.
Upon their retirement at age 67, he plans to purchase an immediate 3%-decreasing term 30-year annuity that makes annual payments at the beginning of each year (i. e, annuity due) for 30 years beginning age 67 and annual payments decrease by 3% each year from the previous year’s payment. Assume 7% interest rate for this annuity.
How much would they receive from the annuity contract on their age 67 and age 68 (i.e., first and second payments from the annuity)?
