FIN 402 MASTER 1 Predictable World / fin402master.com FIN 402 MASTER 1 Predictable World / fin402master. | Page 5

years. If she waits until age 65 to retire, each $1,000 invested in the
annuity will produce an annual benefit of $89.94 for the 15 years.
Carolyn plans to place any funds currently available into a savings
account paying 6% compounded annually until retirement. She does
not expect to be able to save or invest any additional funds between
now and retirement. For every dollar that Carolyn invests today, she
will have $1.50 by age 62; if she leaves the money invested until age
65, she will have $1.79 for each dollar invested today. Questions a.
Assume that Carolyn places currently available funds in the
savings account. Determine the amount of money Carolyn will have
available at retirement once she sells her house if she retires at (1) age
62 and (2) age 65. b. Using the results from item a, determine the
level of annual income that will be provided to Carolyn through
purchase of an annuity at (1) age 62 and (2) age 65. c. With the
results found in the preceding questions, determine the total annual
retirement income Carolyn will have if she retires at (1) age 62 and
(2) age 65. d. From your findings, do you think Carolyn will be
able to achieve her long-run financial goal by retiring at (1) age 62 or
(2) age 65? Explain. e.
Evaluate Carolyn’s investment plan in
terms of her use of a savings account and an annuity rather than other
investments. Comment on the risk and return characteristics of her
plan. What recommendations might you offer Carolyn? Be specific.
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FIN 402 Week 1 Assignment Case Problem 1.2, 2.1, 2.2, 3.1,
12.1
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