Alan Barnett Is 43 Years Old and Has Accumulated $78,000

question 30

Multiple Choice

Alan Barnett is 43 years old and has accumulated $78,000 in his self directed defined contribution pension plan. Each year he contributes $1,500 to the plan, and his employer contributes an equal amount. Alan thinks he will retire at age 60 and figures he will live to age 83. 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 10% and has a standard deviation of 34%. Alan now has 40% of his money in the risk free investment and 60% 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. Of the total amount of new funds that will be invested by Alan and by his employer on his behalf, how much will he put into the safe account each year; how much into the risky account?

• A) $1,500; $1,500
• B) $1,200; $1,800
• C) $2,000; $1,000
• D) $2,500; $500
• E) $1,400; $1,600

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Definitions:

Middle Term

The term that appears in both premises of a categorical syllogism but not in the conclusion, connecting the other two terms.

Syllogism

A method of deducing an outcome from two provided or presumed statements.

Premises

Claims or premises that serve as the foundation for an argument or from which inferences are made.

Categorical Syllogism

A form of deductive reasoning consisting of a major premise, a minor premise, and a conclusion, each of which is a categorical proposition.