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Advanced corporate finance

  1.   The Apex Company has just hired Mr. Smith who is age 25 and is expected to retire at age 60.   Mr. Smiths current salary is $30,000 per year, but his wages are expected to increase by 5 percent annually over the next 35 years.  Apex has a defined benefit pension plan in which workers receive 2 percent of their final years wages for each year of employment .  Assume a world of certainty .   Further assume that all payments occur at year end.  What is Mtr. Smiths expected annual retirement benefit, rounded to the nearest thousands of dollars.?

  1. $35,000
  2. $57,000
  3. $89.000
  4. $116.000
  5. $132,000

  1. Midwest Investment Consultants (MIC) 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 Portfolios alpha?
  1. -0.75%
  2. -0.15%
  3. 0%
  4. 0.15%
  5. 0.75%

  1. The Ritz Company has a 40-year old employee that will retire at age 60 and live to age 75.  The firm has promised a retirement income of $20,000 at the end of each year following retirement until death .  The firms  pension fund is expected to earn 7 percent annually on its assets and the firm uses 7% to discount pension benefits.  What is Ritzs annual pension contribution to the nearest dollar for this employee ?  (Assume certainty and end-of-year cash flows).
  1. $2,756
  2. $3,642
  3. $4,443
  4. $4,967
  5. $5,491

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