solution to FIN 622 Assignment

Question No.1:

Mr. Anwar will retire at the age of 60. He expects to live 20 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 this consumption plan? Assume an interest rate of 7
Percent.

Solution:

C= 55000
I = 7%=0.07
T = 20 Years
Formula for annuity:

= C (1/r-1/r (1+r) t]
Putting the values in formula:
= 55000(1/0.07-1/0.07 (1+0.07)20
= 55000(1/0.07-1/0.07 (3.86)
= 55000(1/0.07-1/0.2702
= 55000(1/0.07-3.70
= 55000(14.28-3.70)
= 55000(10.58)
= 581900



Question # 02:

Star Industries has not been growing since past 20 years because of certain legal
Hazards. It earns Rs. 15 per share per year and pays it all out to stockholders. The
Stockholders have alternative, equivalent‐risk ventures yielding 20 percent per
Year on average. What is the worth of one share of Star Industries? Assume the
Company can keep going indefinites

Solution:

ESP( earning per share)=15 per share
Annual Rate of interest =r 20%= per year

Formula
Po = DIV/r
Putting the values in formula above

Po = 15/0.2
Po = 75