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Herbert has opened a retirement fund account which pays 7 percent interest and requires $5,000
annual deposits. Herbert will retire in 15 years and expects 10 years of retirement life. What is the
maximum annual retirement benefit Herbert can get during his retirement years?
After 15 years the account will have, deposit is made at the start of each year.
26.2 x 5000 = 131000
He will get annual benefit = 131000 x .07 = 9170

2. China America Manufacturing has a beta of 1.50, the risk-free rate of interest is currently 12
percent, and the required return on the market portfolio is 18 percent. The company plans to pay a
dividend of $2.45 per share in the coming year and anticipates that its future dividends will increase at
an annual rate consistent with that experienced over the 2001-2003 period. Year Dividend 2003 2.32
2004 2.21 2005 2.10 Estimate the value of China America Manufacturings stock.

R = .12+1.5 x .06 = .21 or 21%

G = 2.32/2.1^.5 = 1.05-1 = .05 or 5%
2.32 x 1.05 /.21-.05 = $15.23 per share is the estimated value