a. Kevin plans to start saving for retirement and has the option of choosing between two investment opportunities.

Option One: Invest $6,000 per year from ages twenty-five through thirty-two (a total of 8 investments) into an account and then leave it untouched until he is sixty-five years old (33 years)

Option Two: Depositing $6,000 into an account every year beginning at age thirty-three until Kevin is sixty-five years old (a total of 33 investments).

Each account earns an average of 11.25% per year. (The investments are end-of-year payments)

Which of the two options presented above will result in a greater future value by the time Kevin reaches sixty-five years old?

(10 marks)

b. Rhonda is planning to expand her investment portfolio. Her friend Martha owns a British Consol that pays $205 per year forever and has a discount rate of 8.25% per year. Martha wants to liquidate her investment and offers to sell Rhonda all but 25 cash flows (the first to be received one year from today) for $650. In other words, Martha will keep the first 25 cash flows and Rhonda will get all the other payments. Is this a good buy for Rhonda given the discount rate is 8.25%? (10 marks)