You shared all your analysis with Bozena and she is convinced she should participate in the 401(k) plan. She has done a bit more research and has decided on the Research and Technology Fund (RTF) as her sole investment choice. She has been on the fund's website and sees that the fund is actively managed and that its portfolio manager has a successful track record of generating alpha over the risk-adjusted returns of the market. The fund manager has stated that she runs the fund with a target beta of 1.2 and has an alpha target of 70bps a year (. 7% ). Bozena believes it's reasonable to assume she will meet these targets going forward. Having watched CNBC for a few days now, Bozena believes that over the long term, reasonable assumptions for the risk-free rate and for equity market returns are 1% and 8.5%, respectively. Digging a little deeper, Bozena learns that the fund has an annual expense ratio of 1.65%, and that the fund is charged 25 basis points a year (.25%) in 12b1 fees. Bozena is very mindful of fees and the fact that they will lower her realized returns, however decides these are reasonable after comparing RTF to similar funds. While working, Bozena assumes her tax rate will be 20%, however upon retirement she assumes a lower rate of 15%. Once in retirement, Bozena further assumes she will be more conservative in her retirement fund investments, and therefore assumes a return of 4% on her retirement account during her retirement. Bozena will begin with annual contributions equal to 3% of her salary, and her employer will match $0.50 on every dollar she contributes. Her starting salary is $32,000 per year, and she assumes a $5,000 raise every 5 years. Bozena believes she will increase her contributions along the same timeline as her pay increases. Between her contribution and the company match, she assumes the contributions into her account will irfcrease by a combined. 5% every time she receives her raise. Considering all that, answer the following questions. Please be careful and double check all your work before submitting. Question 1 2 pts What is the net annual rate of return Bozena should assume on the RTF considering the data given on beta, market returns, the risk free rate, and fees? How much should Bozena assume will be in her 401(k) account upon retirement in 45 years? Note: Round up to the nearest whole dollar. Canvas may add them, however do not enter commas or the $ sign in your answer. Question 3 2 pts How much should Bozena assume she will be able to withdraw and spend every year upon retirement, assuming she wishes her retirement savings to last 30 years? Question 4 2 pts Bozena wishes to spend in retirement the same amount of after tax salary she is earning when she retires. What is the amount of annual after tax withdrawals she should assume as her target? In other words, what is Bozena earning on an after tax basis in the final five years of her career? Note: Round up to the nearest whole dollar. Do not enter commas or the $ sign in your answer. Given the fact that a simple, non-tax advantaged brokerage or savings account would give Bozena flexibility with regard to investment options and early withdrawals if needed, do you suggest Bozena consider that alternative instead of enrolling in the 401k plan? Yes No
