Air University

Mid –Term Examination Spring-2020

Subject: Financial Management Total Marks: 10

Semester/Section: MBA-2 Time Allowed: 30mins
Instructor: Dr. Hasan Hanif Date: 11/4/2020
1. Manage you time according to the marks allotted to the respective questions.
2. The marks for each part are written in parentheses.
3. Do NOT use mobile as calculators during exams.

Question

You plan to retire in 25 years. Your goal is to create a fund that will allow you to receive
$10,00 at the end of each year for the 15 years after retirement. You can earn 6% per year
during 15-year retirement period.

Requirements

a. How large a fund will you need when you retire in 25 years to provide the 15-year,
$10,000 retirement annuity? (2 marks)
b. If you want to fund your post retirement income with a single amount, how much will
you need today as a single amount provided you earn 6% during the 25 years
preceding retirement? (2 marks)
c. How will decrease in interest rate affect the amounts calculated in part a and b?
Explain. (2 marks)
d. Now assume that you will earn 9% from now through the end of your retirement. You
want to make 25 end-of-year deposits into your retirement account that will fund the
15-year stream of $10,000 annual annuity payments. How large do your annual
deposits have to be? (4 marks)