1. Your mother's employer offers a tax-deferred retirement plan ( a 401-b plan, which was authorized by Congress to encourage savings) which would permit her to invest, tax-free until she retires, up to 15% of her salary. Once you are out of school (1 year from today), she figures she can save $1,000 every six months, or $2,000 a year. The insurance company which manages the retirement fund promises to pay a stated (or nominal) rate of 12% per year, but with quarterly compounding. If your mother invest $1,000 each six months after you graduate (or 18 months from today), how much will she have 5 yars from now, assuming the last payment is made at the end of year 5? (Hint: 8 total payments.)
$12,300
$12,462
$9,897
$9,929
$10,000
2. Perry Adventures last annual dividend was $0.70 a share. The firm will increase the dividend by 5 percent for the next 4 years and thereafter increase the dividend by 3 percent annually. What is this stock worth today if the required return is 10 percent?
A) 10.38 B)11.05 C)11.30 D)13.97 E)14.08