Homework answers / question archive / Question #1 (5 Points): Which of the following is NOT a retirement plan? a) b) c) d) 401k plan 529 plan IRA plan 501(c) plan Answer: ____________ Question #2 (5 Points): Diversify portfolio are recommended because it lowers risk exposure

Question #1 (5 Points): Which of the following is NOT a retirement plan? a) b) c) d) 401k plan 529 plan IRA plan 501(c) plan Answer: ____________ Question #2 (5 Points): Diversify portfolio are recommended because it lowers risk exposure

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Question #1 (5 Points): Which of the following is NOT a retirement plan? a) b) c) d) 401k plan 529 plan IRA plan 501(c) plan Answer: ____________ Question #2 (5 Points): Diversify portfolio are recommended because it lowers risk exposure. Investing in indexes is one way to insure diversification. List the name of 4 indexes. Answer: Question #3 (5 Points): What is the difference between “define contribution” and “define benefit”? Answer: Question #4 (5 Points): A friend come to you and ask you to invest $10,000 on a stock. If you can only hold the stock for 1 year somehow obtain the following probability distribution of the return in 1 year: Return: -20% +0% +25% Probability: 1/3 1/3 1/3 Assuming a MARR of 5% and no inflation. a) What is the expected price of the stock in 1 year? Answer: b) Should you invest in the stock? (show your work) Answer: Question #5 (5 Points): One of the three sources of capitol a firm has is offering new equity (stock) to the public. Unlike debt, companies do not have to repay the money raise. So why would a company borrow money instead issuing new stock? Answer: Question #6 (5 Points): Why it is necessary to replace a machine at the right time, not too soon and not too late (also called minimizing EUAC)? Answer: Question #7 (5 Points): Describe inflation, explain how it happens and describe its effect on purchasing power? Answer: Question #8 (5 Points): Even though software is synonymous with defects/bugs, yet the aerospace industry has been developing critical software for aircraft with relatively no defect. What process ensure that critical software are developed error free and how? Answer: Question #9 (5 Points): You are asked to determine whether to replace a machine that was purchased 5 years ago for $10,000 with a new and better version that just came out. It cost the same price but offers twice the benefit and 50% less maintenance cost. What should you take into consideration in your analysis and what should you ignore? Answer: Question #10 (5 Points): What is MARR and how do you choose it? Answer: Question #11 (10 Points): If you buy municipal bond (tax free) that cost $1,000 and will pay a 4.7% coupon every year for the next 10 years (so the maturity date is in 10 years). At maturity the bond returns the original $1,000. If there is a 2.5% annual inflation, a) what real rate of return will you receive? Answer: b) How much real $ profit did you make from the bond? Answer: Question #12 (10 Points): A machine was purchased and installed 6 years ago for $50000 with a useful life of 10 years. The salvage value is now $5500 and decreasing at a rate of $500 per year. The machine has a maintenance cost of $2000 per year. Assuming a 12.4% MARR, should the company replace the machine this year with a potential new machine that has a EUAC of $3000 per year? (show your work) Answer: Question #13 (10 Points): Giving the following information on machine A and machine B and assuming an 8.6% MARR, which mutually exclusive alternative should be selected? Machine Year A 0 -5500 1 -3500 2 4000 3 4000 4 4000 Answer: Machine B -5500 2100 2100 2100 2100 Question #14 (10 Points): If inflation is 2.7% each year from 2021 to 2031, what is the purchasing power in 2021 dollars of $100,000 in 2031? Answer: Question #15 (10 Points): In 2021 the exchange rate between the Haitian Gourde and the US dollar is 50 to 1. If Haiti experience inflation at the rate of 17% while the US experience inflation at a rate of only 4.7% per year. Assuming the exchange rate will vary at the same rate as inflation, what will be the exchange rate in 2026? Answer: