1) On distant planet of Zurg, stock market had the return last year of -60%. This year, because of the economic recovery, stock market had the return of +100%. Determine the investor’s effective annual return over this two year period? If investor needs the annual return of 10% to be happy, is the investor happy?
2) Erma and Fred will retire in 30 years. They plan to keep $4,000 each year in the savings account, earning 6% interest.
i) Determine the money they have accumulated 30 years from now?
ii) Suppose that Erma and Fred desire to spend $30,000 a year for 20 years once they retire, and then leave the $150,000 inheritance for their kids. How much do they require in savings when they retire?
iii) Will Erma and Fred have sufficient amount of savings when they retire? If not, what extra annual amount should they save in years 1 to 30?