Question # 01: Mr. Anwar will retire at the age of 60. He expects to live20 more
ID: 2662071 • Letter: Q
Question
Question # 01:Mr. Anwar will retire at the age of 60. He expects to live20 more years and to spend Rs. 55,000 a year during his retirement.How much money does he need to save by age 60 to support thisconsumption plan? Assume an interest rate of 7percent.Question # 02Star Industries has not been growing since past 20 yearsbecause of certain legal hazards. It earns Rs. 15 per share peryear and pays it all out to stockholders. The stockholders havealternative, equivalent-risk ventures yielding 20percent per year on average. What is the worth of one share of StarIndustries? Assume the company can keep goingindefinitely. Question # 01:Mr. Anwar will retire at the age of 60. He expects to live20 more years and to spend Rs. 55,000 a year during his retirement.How much money does he need to save by age 60 to support thisconsumption plan? Assume an interest rate of 7percent.Question # 02Star Industries has not been growing since past 20 yearsbecause of certain legal hazards. It earns Rs. 15 per share peryear and pays it all out to stockholders. The stockholders havealternative, equivalent-risk ventures yielding 20percent per year on average. What is the worth of one share of StarIndustries? Assume the company can keep goingindefinitely.Explanation / Answer
Question :1
Number of Years(N) = 20years
Annual Consumption Amount(PMT) = $55,000
Interest Rate(Rate) = 7%
Calculating Present Value of Savings Amount(PV):
(Using Ms-Excel “PV” Function):
Interest Rate (Rate) : 7%
Number of Periods(Nper) : 20
Annual consumption Amount (PMT): -$55,000
Present Value of Savings Amount : $582,670.78
Question : 2
Star Industries earns Rs.15 per share per year and pays it allout to stockholders.
Stockholders have alternative, equivalent risk ventures yielding20% per year on average.
If the company is keep going indefinitely, the Share Value ofStart Industries will be:
One Share worth = 15 / 0.20 = Rs.75
One share worth = Rs.75