FIN1035 Retirement Planning

FIN 1035: RETIREMENT PLANNING

Practice Questions

Factors Affecting Retirement Planning

Time Value of Money (“TVM”)

Calculations

CPT – Compute key used to initiate financial calculation once all values are known and inputted.

N – Number of periods.

I/Y – Interest rate per period (consistent with N above).

P/Y – Number of payments per period (ie. annual, semi-annual, quarter, month, etc.)

C/Y – Compounding period (ie. annual, semi-annual, quarter, month, etc.)

PV – Present value (ie current value in today’s dollars equivalent to some future amount or income stream).

PMT – Amount of regular payment, either income or expense (only applicable for annuity questions).

FV – Future value (ie amount of money at some point in the future that is equivalent in today’s dollars to a current amount of money or income stream into the future).

Factor #1:      Longevity

No Applicable Financial Calculations

Factor #2:      Inflation

1. Andre’s financial advisor told him that, to meet his retirement goals, he must earn a “real” rate of return each year of 4%. In the year just ended, inflation jumped unexpectedly to 3.5%. Andre’s tax-sheltered retirement funds earned 7%. Andre thought he has exceeded his required rate of return. What is Andre’s “real” rate of return? 
2. Andrea plans to save $5,000 a year for 4 years. Money will be put aside at the beginning of the year. She is only 49 years old, so she is willing to take some risk, but not a lot. Thus, she expects she can earn a nominal rate of return of 9%, when inflation is 3%. What will be the future value of her investment plan in 4 years?
3. (Note – Income Indexed to Inflation) Janine wants to estimate the value of her CPP retirement income of $9,300 at retirement in 5 years. CPP payments are indexed to inflation. To discount, she will use a long-term Government of Canada bond rate of 7% at a time when inflation is 3%?
4. (Note – Income Not-Indexed to Inflation) Janine also has a pension plan that will pay her $9,300 at the beginning of each year. However, this pension payment is not indexed to inflation (ie. the payments are in nominal dollars). Assuming the same 5 years until retirement, what is the value of these pension payments now. To discount, she will use the same  long-term Government of Canada bond rate of 7% and inflation is still 3%?

Factor #3:      Rates of Return

5. (Scenario #1 – Given a nominal rate of return before tax, calculate the nominal rate of return after tax – both interest income and also capital gains earned).

Oliva has received 6% interest on a Guaranteed Investment Certificate (GIC) after 1 year. Her marginal tax rate is 48%. What is her after-tax rate of return?

Oliva also owns some shares in a publicly traded company. Coincidentally, she received a 6% rate of return on her investment in these shares after 1 year. Her marginal tax rate is 48%. What is her after-tax rate of return?

6. (Scenario #2 – Given a nominal rate of return before tax, calculate the real rate of return after tax – both interest income and also capital gains earned).

What is Oliva’s “real”, after-tax, rate of return if inflation is 3%?

To View this free samples.
Please enter your valid email id.

Download Sample Now

Earn back money you have spent on downloaded sample

PAY 5 USD TO DOWNLOAD

Want to order fresh copy of the Sample Template Answers? online or do you need the old solutions for Sample Template, contact our customer support or talk to us to get the answers of it.