Ms. Lloyd, who is 25 and expects to retire at age 60,
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 $30,000 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. $35,000
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?