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Question
Alex Goh is 39 years old and has accumulated $128,000 in his self directed defined contribution pension plan. Each year he contributes $2,500 to the plan, and his employer contributes an equal amount. Alex thinks he will retire at age 62 and figures he will live to age 86. The plan allows for two types of investments. One offers a 4% risk free real rate of return. The other offers an expected return of 11% and has a standard deviation of 37%. Alex now has 25% of his money in the risk free investment and 75% in the risky investment. He plans to continue saving at the same rate and keep the same proportions invested in each of the investments. His salary will grow at the same rate as inflation. How much can Alex expect to have in his risky account at retirement?
A. $1,400,326
B. $1,309,529
C. $1,543,781
D. $1,224,651
E. $1,345,886
Answer
This answer is hidden. It contains 86 characters.
Related questions
Q:
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B. risk arbitrage.
C. option arbitrage.
D. equilibrium arbitrage.
Q:
An important difference between CAPM and APT is
A. CAPM depends on risk-return dominance; APT depends on a no-arbitrage condition.
B. CAPM assumes many small changes are required to bring the market back to equilibrium; APT assumes a few large changes are required to bring the market back to equilibrium.
C. implications for prices derived from CAPM arguments are stronger than prices derived from APT arguments.
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Q:
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Q:
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A. I and III
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Q:
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Q:
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Q:
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II) unique risk
III) systematic risk
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Q:
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A. the portfolio standard deviation will be greater than the weighted average of the individual security standard
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deviations.
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Q:
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C. Personnel changes
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Q:
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E. None of the options are correct.
Q:
Which statement about portfolio diversification is correct?
A. Proper diversification can eliminate systematic risk.
B. The risk-reducing benefits of diversification do not occur meaningfully until at least 50-60 individual securities
have been purchased.
C. Because diversification reduces a portfolio's total risk, it necessarily reduces the portfolio's expected return.
D. Typically, as more securities are added to a portfolio, total risk would be expected to decrease at a
decreasing rate.
E. None of the statements are correct.
Q:
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Q:
Consider two perfectly negatively correlated risky securities A and B. A has an expected rate of return of 10%
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Q:
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A. 0.24; 0.76
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Q:
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A. 1.5%; 1.9%
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C. 3.2%; 2.0%
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Q:
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A. is a weighted sum of the securities' variances.
B. is the sum of the securities' variances.
C. is the weighted sum of the securities' variances and covariances.
D. is the sum of the securities' covariances.
E. None of the options are correct.
Q:
You invest $100 in a risky asset with an expected rate of return of 0.11 and a standard deviation of 0.20 and a
T-bill with a rate of return of 0.03.
What percentages of your money must be invested in the risky asset and the risk-free asset, respectively, to
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A. 85% and 15%
B. 75% and 25%
C. 62.5% and 37.5%
D. 57% and 43%
E. Cannot be determined.
Q:
An investor invests 35% of his wealth in a risky asset with an expected rate of return of 0.18 and a variance of
0.10 and 65% in a T-bill that pays 4%. His portfolio's expected return and standard deviation are __________
and __________, respectively.
A. 0.089; 0.111
B. 0.087; 0.063
C. 0.096; 0.126
D. 0.087; 0.144