Genny Webb Is 27 Years Old and Has Accumulated $7,500

question 67

Multiple Choice

Genny Webb is 27 years old and has accumulated $7,500 in her self directed defined contribution pension plan. Each year she contributes $2,000 to the plan, and her employer contributes an equal amount. Genny thinks she will retire at age 63 and figures she will live to age 90. The plan allows for two types of investments. One offers a 3% risk free real rate of return. The other offers an expected return of 12% and has a standard deviation of 39%. Genny now has 20% of her money in the risk free investment and 80% 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. Of the total amount of new funds that will be invested by Genny and by her employer on her behalf, how much will Genny put into the safe account each year; how much into the risky account?

• A) $1,500; $2,500
• B) $1,200; $1,800
• C) $800; $3,200
• D) $1,250; $2,750
• E) $1,400; $1,600

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Definitions:

Labor Relations

The study and practice of managing relationships between employers and employees, focusing on negotiation, implementation of agreements, and resolution of disputes.

Industrialization

The process by which an economy is transformed from primarily agricultural to one based on the manufacturing of goods.

Historical Rate

An exchange rate used to convert amounts related to transactions in foreign currencies based on the rate in effect at the time of the original transaction.

Closing Rate

Closing Rate refers to the exchange rate between two currencies at the end of a trading period, used in accounting to convert the financial statements of foreign subsidiaries.