Alex Goh Is 39 Years Old and Has Accumulated $128,000

question 40

Multiple Choice

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 does Alex currently have in the safe account; how much in the risky account?

• A)$31,200; $46,800
• B)$39,000; $39,000
• C)$32,000; $96,000
• D)$45,300; $32,700

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Definitions:

Sensitivity

The degree to which a system's output depends on the input or how changes in input can affect the output in modeling and analysis.

Subjectivity

Subjectivity pertains to how someone's judgment is shaped by personal opinions and feelings instead of external facts or evidence.

Centre-of-Gravity

A method in location analysis that finds the best location for a facility based on minimizing transportation costs, taking into account the geographical distribution of supply and demand.

Tonnes

A metric unit of mass equal to 1,000 kilograms or approximately 2,204.6 pounds.