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# Calculating Benefits, Alpha, and Pension Contribution

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The group cannot come to a decision regarding which is correct. Please help. For #1 - 1 voted for \$35,00, 2 voted for \$89,000 and 2 voted \$116,000; #2 - 3 voted for -0.75% while 2 voted for 0% and 1 voted 0.15; #3 - 3 voted for \$2,756 while 2 voted for \$4,443. This the the first time we have all had a difference as such.

1. The Apex Company has just hired Mr. Smith, who is age 25 and is expected to retire at age 60. Mr. Smith's current salary is \$30,000 per year, but his wages are expected to increase by 5 percent annually over the next 35 years. Apex has a defined benefit pension plan in which workers receive 2 percent of their final year's wages for each year of employment. Assume a world of certainty. Further, assume that all payments occur at year-end. What is Mr. Smith's expected annual retirement benefit, rounded to the nearest thousands of dollars?
a. \$ 35,000
b. \$ 57,000
c. \$ 89,000
d. \$116,000
e. \$132,000

2. Midwest Investment Consultants (MIC) operates several stock investment portfolios that are used by firms for investment of pension plan assets. Last year, one portfolio had a realized return of 12.6 percent and a beta coefficient of 1.15. The average T-bond rate was 7 percent and the realized rate of return on the S&P 500 was 12 percent. What was the portfolio's alpha?
a. -0.75%
b. -0.15%
c. 0%
d. 0.15%
e. 0.75%

3. The Ritz Company has a 40-year-old employee that will retire at age 60 and live to age 75. The firm has promised a retirement income of \$20,000 at the end of each year following retirement until death. The firm's pension fund is expected to earn 7 percent annually on its assets and the firm uses 7% to discount pension benefits. What is Ritz's annual pension contribution to the nearest dollar for this employee? (Assume certainty and end-of-year cash flows.)
a. \$2,756
b. \$3,642
c. \$4,443
d. \$4,967
e. \$5,491