Stephanie Watson Is 23 Years Old and Has Accumulated $4,000

question 4

Multiple Choice

Stephanie Watson is 23 years old and has accumulated $4,000 in her self directed defined contribution pension plan. Each year she contributes $2,000 to the plan, and her employer contributes an equal amount. Stephanie thinks she will retire at age 67 and figures she will live to age 81. The plan allows for two types of investments. One offers a 3.5% risk free real rate of return. The other offers an expected return of 10% and has a standard deviation of 23%. Stephanie now has 5% of her money in the risk free investment and 95% in the risky investment. She plans to continue saving at the same rate and keep the same proportions invested in each of the investments. Her salary will grow at the same rate as inflation. How much can Stephanie be sure of having in the safe account at retirement?

• A) $37,221
• B) $16,423
• C) $11,856
• D) $21,156.
• E) $49,219

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Definitions:

Securities

Financial instruments that represent ownership positions in corporations (stock), creditor relationships with governmental bodies or corporations (bonds), or rights to ownership as represented by an option.

Subscriptions Receivable

An amount owed by customers for subscription services or products that have been provided but not yet paid for.

Paid-in Capital

Paid-in capital is the amount of money that a company has received from shareholders in exchange for shares of stock, reflecting the capital that has been invested in the company beyond its par value.

Common Stock Subscribed

A commitment by investors to purchase shares of a company's common stock, where the shares are reserved for the subscribers until payment is made.