Only answers question 5 I have provided answers to questions 1-4

Question 5:

What are the risks, and potential returns associated with each of the six alternative funds?

CASE 01: Retirement Plan and Investment Choices -

Bens 22-year-old son John has just accepted a job with Biomedical Research Institute (BRI), a

firm specializing in biomedical sciences and cutting-edge genetic technologies. BRI offers

employees a 401(k) plan to which employees may contribute a maximum of 6% of their salary.

BRI will match $0.50 for every dollar contributed to the retirement plan by employee. Johns

starting salary is $34,000, so he could contribute up to $2,040 and BRI would contribute an

additional $1,020. If John did decide to contribute to the plan, he has the following choices of

funds, all managed by XYZ Investments. He may select any combination of the funds and

change the selection quarterly.

1.) If John participates and the 401(k) earns 10% annually, how much will he have accumulated in 45 years (to age 67) even if his salary does not change? Also, it will be helpful to convince John if we could show how his cash flows future value increases overtime. So, please show your analysis for all 45 years.

By the end of the Year 45 total amount is $2,199,848.80

2. ) If he does not participate and annually saves $2,040 on his own, how much will he have accumulated if he earns 10% (before tax) and is in the 20% federal income tax bracket? Also, it will be helpful for John to make an informed decisions if we could show how his cash flows future value increases over time. So, please show your analysis for all 45 years

By the end of the Year, 45 total amount is $788,471.46

3. ) If he retires at age 67, given the amounts in (1) and (2), how much can John withdraw and spend each year for 20 years from each alternative? Assume he continues to earn 10% (before tax) and remains in the 20% federal income tax bracket. Show full 20 years of cash flows.

4.If his salary grows, what impact will the increase on the 401(k) plan? To illustrate the

effect on his accumulated funds, assume a $5000 increment every five years so that he is

earning $74,000 in years 41-45 (ages 63-67).

5.)

What are the risks, and potential returns associated with each of the six alternative funds?

TABLE 01: Return 13% Standard Deviation of Return 20% 10 Beta 0.7 0.3 12 1.1 0.9 0.6 40 a. USVF b. RTF C. GE d. GBF e. HYD f. MF 0.2 7 10 1.5 0.3 0.4 0.0 12 0.3 0.0 Years Income 2 3 $ $ uni 10 $ 11 $ 12 $ 13 $ 14 $ 15 $ 16 $ 17 $ 18 $ 19 $ 20 $ 21 $ 34,000 34,000 34,000 34,000 34,000 34,000 34,000 34,000 34,000 34,000 34,000 34,000 34,000 34,000 34,000 34,000 34,000 34,000 34,000 34,000 34,000 34,000 34,000 34,000 34,000 34,000 34,000 34,000 34,000 34,000 34,000 34,000 34,000 34,000 34,000 34,000 34,000 34,000 34,000 34,000 34,000 34,000 34,000 34,000 34,000 Employeer contributior John's Contriibuttior Rate $ 1,020 $ 2,040 $ 1,020 $ 2,040 $ 1,020 $ 2,040 $ 1,020 S 2,040 $ 1,020 $ 2,040 $ 1,020 $ 2,040 $ 1,020 $ 2,040 $ 1,020 $ 2,040 $ 1,020 $ 2,040 $ 1,020 $ 2,040 $ 1,020 $ 2,040 $ 1,020 $ 2,040 $ 1,020 $ 2,040 $ 1,020 $ 2,040 $ 1,020 $ 2,040 $ 1,020 $ 2,040 $ 1,020 $ 2,040 $ 1,020 $ 2,040 $ 1,020 $ 2,040 $ 1,020 $ 2,040 $ 1,020 $ 2,040 $ 1,020 $ 2,040 $ 1,020 $ 2,040 $ 1,020 $ 2,040 $ 1,020 $ 2,040 $ 1,020 $ 2,040 $ 1,020 $ 2,040 $ 1,020 $ 2,040 $ 1,020 $ 2,040 $ 1,020 $ 2,040 $ 1,020 $ 2,040 $ 1,020 $ 2,040 $ 1,020 $ 2,040 $ 1,020 $ 2,040 $ 1,020 $ 2,040 $ 1,020 $ 2,040 $ 1,020 $ 2,040 $ 1,020 $ 2,040 $ 1,020 $ 2,040 $ 1,020 $ 2,040 $ 1,020 $ 2,040 $ 1,020 $ 2,040 $ 1,020 $ 2,040 $ 1,020 $ 2,040 $ 1,020 $ 2,040! 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% Total Contribution $ 3,060 =FVI E2, A2,-F2,0) $ 3,060 $ 3,060 $ 3,060 $ 3,060 $ 3,060 $ 3,060 $ 3,060 $ 3,060 $ 3,060 $ 3,060 $ 3,060 $ 3,060 $ 3,060 $ 3,060 $ 3,060 $ 3,060 $ 3,060 $ 3,060 $ 3,060 $ 3,060 $ 3,060 $ 3,060 $ 3,060 $ 3,060 $ 3,060 $ 3,060 $ 3,060 $ 3,060 $ 3,060 $ 3,060 $ 3,060 $ 3,060 $ 3,060 $ 3,060 $ 3,060 $ 3,060 $ 3,060 $ 3,060 $ 3,060 $ 3,060 $ 3,060 $ 3,060 $ 3,060 $ 3,060 End of Year 1 $3,060.00 $6,426.00 $10,128.60 $14,201.46 $18,681.61 $23,609.77 $29,030.74 $34,993.82 $41,553.20 $48,768.52 $56,705.37 $65,435.91 $75,039.50 $85,603.45 $97,223.79 $110,006.17 $124,066.79 $139,533.47 $156,546.82 $175,261.50 $195,847.65 $218,492.41 $243,401.65 $270,801.82 $300,942.00 $334,096.20 $370,565.82 $410,682.40 $454,810.64 $503,351.71 $556,746.88 $615,481.57 $680,089.73 $751,158.70 $829,334.57 $915,328.02 $1,009,920.83 $1,113,972.91 $1,228,430.20 $1,354,333.22 $1,492,826.54 $1,645,169.20 $1,812,746.12 $1,997,080.73 $2,199,848.80 25 $ 26 S 27 $ 28 $ 34 $ 35 $ 36 $ 37 $ 38 $ 39 $ 40 $ 41 $ 42 $ 43 $ 44 $ 45 $ Years Income Rate 1 $ 34,000 2 $ 34,000 3 $ 34,000 4 $ 34,000 5 $ 34,000 6 $ 34,000 7 $ 34,000 8 $ 34,000 9 $ 34,000 10 S 34,000 11 5 34,000 12 5 34,000 34,000 14 $ 34,000 15 $ 34,000 16 $ 34,000 17 S 34,000 34,000 19 $ 34,000 20 $ 34,000 21 $ 34,000 22 $ 34,000 23 $ 34,000 24 $ 34,000 25 $ 34,000 26 $ 34,000 27 $ 34,000 28 $ 34,000 29 $ 34,000 30 $ 34,000 31 5 34,000 32 $ 34,000 33 $ 34,000 34 5 34,000 35 $ 34,000 36 $ 34,000 37 $ 34,000 38 $ 34,000 39 $ 34,000 40 $ 34,000 41 $ 34,000 42 $ 34,000 43 $ 34,000 44 $ 34,000 45 $ 34,000 8% 8% 8% 8% 8% 8% 8% 89 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% Johns Contribution S 2,040 $ 2,040 $ 2,040 5 2,040 5 2,040 5 2,040 5 2,040 S 2,040 S 2,040 5 2,040 5 2,040 5 2,040 S 2,040 5 2,040 5 2,040 S 2,040 5 2,040 S 2,040 S 2,040 $ 2,040 5 2,040 $ 2,040 $ 2,040 $ 2,040 $ 2,040 $ 2,040 $ 2,040 5 2,040 5 2,040 5 2,040 5 2,040 5 2,040 5 2,040 5 2,040 5 2,040 5 2,040 5 2,040 5 2,040 5 2,040 5 2,040 $ 2,040 5 2,040 5 2,040 5 2,040 $ 2,040 End of Year $2,040.00 $4,243.20 $6,622.66 $9,192.47 $11,967.87 $14,965.30 $18,202.52 $21,698.72 $25,474.62 $29,552.59 $33,956.79 $38,713.34 $43,850.41 $49,398.44 $55,390.31 $61,861.54 $68,850.46 $76,398.50 $84,550.38 $93,354.41 $102,862.76 $113,131.78 $124,222.32 $136,200.11 $149,136.12 $163, 107.01 $178,195.57 $194,491.21 $212,090.51 $231,097.75 $251,625.57 $273,795.62 $297,739.27 $323,598.41 $351,526.28 $381,688.38 $414,263.45 $449,444.53 $487,440.09 $528,475.30 $572,793.32 $620,656.79 $672,349.33 $728,177.28 $788,471.46 Years 401(k) 1 $2,375,836.70 2 $1,233,607.52 3 $853,615.06 4 $664,180.12 5 $550,966.33 6 $475,861.14 7 $422,530.24 8 $382,806.16 9 $352,151.16 10 $327,842.34 11 $308,146.77 12 $291,908.97 13 $278,328.84 14 $266,834.74 15 $257,007.33 16 $248,532.04 17 $241,168.17 18 $234,728.48 19 $229,065.04 20 $224,059.46 John's Contribution $851,549.18 $442,150.53 $305,953.35 $238,055.94 $197,477.77 $170,558.51 $151,443.61 $137,205.67 $126,218.28 $117,505.50 $110,446.20 $104,626.23 $99,758.83 $95,639.11 $92,116.76 $89,079.04 $86,439.68 $84,131.56 $82,101.66 $80,307.56