*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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