Each student must turn in any two of the four cases.

The due date for each case is different. For whichever cases you select, submit your answers on paper (an Excel printout is fine) by the due date. Also be prepared to explain your answer to the case for the class on the evening of the due date (after the lecture). Bring your Excel file to class on a flash drive or laptop.

Case 1 – Time Value of Money

Due Date: 2/13/2013

There are two people: Joe Spender and Bill Saver. Both have just turned 24 years old. Neither has any savings.

Both have just finished college and are starting their first job, making $41,000 each. For simplicity, assume their salaries remain the same throughout their careers. Also assume that there are no taxes.

Both will retire at age 68, at the end of the year, and both will earn 6.25% annually (at the end of each year) on their investments (i.e., savings).

Joe saves nothing every year. That is, he spends all of his income.

Bill saves and invests 3/8 of his income every year. Income is defined as salary + earnings on investments. Assume that he invests at the end of each year (no interest is earned in the first year working).

By the time they retire, which person will have spent more?

At what age are they spending the same amount annually (round your answer)?

At what age will they have spent the same amount cumulatively (round your answer)?

How much does each have in the account at retirement?

Case 2 – Portfolio Theory

Due Date 3/6/2013

You are a financial advisor. The following clients come to you for advice:

Josephine

Josephine has just landed her first job out of graduate school. She is working for one of the Big Four, earning $50,000 per year. She expects her salary to increase by 3% each year. Josephine has a goal of retiring after 36 years and then traveling the world in retirement for 20 years. Once she retires she will move all of her assets into Treasury