1) Edward wishes to save enough money to purchase a retirement lake cabin. He is willing to spend $500,000 for the cabin and he can save $25,000 per year and invest the money into an account earning 8.00% per year. If Edward's investments come in the form of equal annual end-of-the-year cash flows and the first cash flow is in exactly one year, how long will it take him to save enough money to buy the lake cabin?
a) Between 8 and 9 years.
b) Between 10 and 11 years.
c) Between 12 and 13 years.
d) Exactly 20 years.
2) An investment advisor has recommended a $70,000 portfolio containing assets R, J, and K; $25,000 will be invested in asset R, with an expected annual return of 12 percent; $10,000 will be invested in asset J, with an expected annual return of 18 percent; and $15,000 will be invested in asset K, with an expected annual return of 8 percent. The expected annual return of this portfolio is:
a) 12.67%
b) 12.00%
c) 10.00%