Inputs: PV PMT Nper
Interest
Rate
FV
a.
Fixed
Income
Fund
-100000 -1500 25 0.03 ?
Common
Stock
Fund
-100000 -1500 25 0.06 ?
b.
Answers:
a.
Fixed
Income
Fund
$264,066.69
Common
Stock
Fund
Payment
Annuity
Payment
tion for an
annual
$511,483.84
Fixed
Income
Problem 28-3
George More is a participant in a defined contribution pension plan that offers a fixed-income fund and a common stock fund as investment
choices. He is 40 years old and has an accumulation of $100,000 in each of the funds. He currently contributes $1,500 per year to each. He
plans to retire at age 65, and his life expectancy is age 80.
a.Assuming a 3% per year real earnings rate for the fixed-income fund and 6% per year for common stocks, what will be George’s expected
accumulation in each account at age 65? (Do not round time value factors and round your final answer to the nearest dollar amount. Omit
the “$” sign in your response.)
Fixed income fund $
Fixed
Income
Fund
Common
Stock
Fund
Fixed
Income
Fund
Answers:
The Roth
IRA and
Problem 28-4
The difference between a Roth IRA and a conventional IRA is that in a Roth IRA taxes are paid on the income that is
contributed but the withdrawals at retirement are tax-free. In a conventional IRA, however, the contributions reduce
your taxable income, but the withdrawals at retirement are taxable.
a.Which of these two types provides higher after-tax benefits?
The Roth IRA provides the higher after-tax benefits.