1) Use Excel to answer the following question. You may use a financial calculator to check your work afterwards, but you must construct a spreadsheet yourself to calculate the answers. Submit your spreadsheet file along with your written answers.

How valuable is it if a fund saves you 50 basis points (i.e. 0.5%) per year in expenses? The following gives a sense:

• If you save $40,000/year and invest at a 4.0% rate of return, how long does it take to save $2 million?

• If you save at $40,000/year and invest at 4.5%, how long will it take?

• If you have $2 million and can invest at 4%, how many dollars can you spend per year and have nothing left after 30 years?

How much can you spend per year if you can invest at 4.5%?

2)Your friend Bob is not particularly bright. He says what do you mean, returns have gone down. For the past three years, returns have gone up. If youre estimating expected returns using historical returns, you should raise your estimate of future expected returns, not lower it. Respond.