(a.)

Johnny is preparing a saving plan for his retirement in 15 years. In order to achieve his saving target, Johnny decided to invest $6,000 per month at the end of every month in a stock account and $90,000 per year at every year-end in a bond account. The return on the stock account is expected to be 18% per annum (p.a.), and the bond account will provide 10% p.a. return to him.

Johnny expects he will live 20 more years after his retirement. At the time he retires, he will combine the above proceeds into a savings account which provides 4% p.a. monthly compounding interest income to him.

If Johnny wants to withdraw money at every month-end from this savings account during his 20 years retirement life. How much can Johnny withdraw each month during his retirement?

(b)

As we know, the agency cost refers to two things:

i. The loss in shareholders' wealth caused by suboptimal decisions made by agents who give priority to their own interests.

ii. The financial resources used to monitor managers and to assure that they act in the best interest of the shareholders.

Provide one example for each definition above to illustrate the occurrence of agency problem.