Project #90513 - Accounting and Finance homework

1.    Suppose you have £1000. Assuming you can invest in a savings account that yields 5% a year, compounded annually. How much will your savings be worth in 20 years? (I do not need help with this)

2.    Suppose you want to convert that amount into a fixed stream of income. An insurance company offers an annuity contract, with a 2% interest rate for discounting, and expects the annuity to be paid for 10 years. How much can you earn per year?

3.    Suppose your target income from the annuity contract is £500 a year, how much should your savings account balance be worth at the end of the saving period? How much do you need to add each year to your savings account – again assuming to be saving for 20 years at 5%, with an initial endownment of £1000 - to reach it?

4.    Check on Bloomberg the current yield on a Generic UK 10 years government bond on date 1 October 2015. Is this yield enough for you to build your savings for retirement? 

5.    Look at the return on the “Rolls Royce PLC” stock. Using the average of the past 5 years up to 1 October 2015 as basis for expected returns, judge if the stock returns would be enough to invest your initial £1000 (without additional yearly payments).

Build a portfolio with stock “Rolls Royce PLC” and the 10 year generic government bond yield as the risk-free asset, such that its expected return is exactly enough for you to build up your savings in 20 years (without additional yearly payments). Which weighs does your portfolio have? 

 

Essay must be 2,000 words long

Subject Business
Due By (Pacific Time) 11/05/2015 12:00 am
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