Mavis Invests $10 000 Today in a Managed Fund to Supplement

question 24

Multiple Choice

Mavis invests $10 000 today in a managed fund to supplement her employer funded superannuation scheme.She expects to earn 8 per cent,compounded annually,on her money for the next 26 years.After that,she wants to be more conservative,so only expects to earn 5 per cent,compounded annually.How much money will she have in her account when she retires 38 years from now,assuming this is the only deposit she makes into the fund?

• A)$129 411.20
• B)$132 827.88
• C)$134 616.56
• D)$141 919.67
• E)$142 003.12

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Definitions:

Risk Aversion

This concept describes an investor's preference to minimize uncertainty or to avoid risk in their investment decisions.

Risk-Free Rate

An anticipated gain from an investment devoid of financial risk, frequently illustrated through the returns on state bonds.

Arbitrage

The simultaneous purchase and sale of an asset in different markets to exploit price differences for a risk-free profit.

Mispricing

The occurrence of an asset being priced either higher or lower than its intrinsic value due to market inefficiencies or errors in analysis.