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

question 73

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. How much can Alan be sure of having in the safe account at retirement?

• A) $59,473
• B) $62,557
• C) $78,943
• D) $89,211
• E) $104,632

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Definitions:

Purchases

Transactions where goods or services are exchanged for money, typically recorded in the accounting period in which they occur.

Income Summary Account

An income summary account is an account used in the closing process that temporarily holds the balances of all income and expense accounts before transferring the net result to capital or retained earnings.

Net Loss

The amount by which company expenses exceed its revenues over a specified period, indicating a loss in financial performance.

Post-Closing Trial Balance

A list of all accounts still open after closing entries are made, used to ensure that debits equal credits.