1. Colin is 40 years old and wants to retire in 27 years. His family has a history of living well into their 90s. Therefore, he estimates that he will live to age 95. He currently has a salary of $150,000 and expects that he will need about 75% of that amount annually if he were retired. He can earn 8 percent from his portfolio and expects inflation to continue at 3 percent. Some years ago, he worked for the government and expects to receive an annuity that will pay him $20,000 in today’s dollars per year beginning at age 67. The annuity includes a cost of living adjustment, which is equal to inflation. Colin currently has $200,000 invested for his retirement. His Social Security benefit in today’s dollars is $30,000 per year at normal age retirement of age 67. How much does he need to accumulate at age 67 exclusive of his pension and Social Security benefits?
a. $2.1 million.
b. $2.2 million.
c. $2.8 million.
d. $2.9 million.
2. If semistrong, or strong, form efficiency exists, then, on average, investors are probably best served by
investing based solely on a stock’s past performance.
investing in index funds rather than in actively managed mutual funds.
avoiding all mutual funds.
randomly purchasing stocks by just throwing darts.
avoiding the stock market altogether.