Question 1

PLAN A
Total payment = (1400) (12) (85-61)
= (16800) (24)
= 403200
PLAN B
Total payment = (2000) (12) (85-66)
= (24000) (19)
= 456000
PLAN C
Total payment = (2480) (12) (85-69)
= (29760) (16)
= 476160
PLAN D
Total money = (12000) (3) + (29760) (16)
= 36000 + 476160
= 512160









Question 2

PLAN A
Future worth = 16800 (F/A, 6%, 24)
= 16800 (50.8156)
= 853702.08
PLAN B
Future worth = 24000 (F/A, 6%, 19)
= 24000 (33.76)
= 810240
PLAN C
Future worth = 29760 (F/A, 6&, 16)
= 29760 (25.6725)
= 764013.6
PLAN D
Future worth = 12000 (F/A, 6%, 3) (P/F, 6%, 16) + 29760(F/A, 16%, 16)
= 12000 (3.1836) (2.5404) + 29760 (25.6725)
= 861065










Rate
(i)
6.00% PLAN A PLAN B PLAN C PLAN D
Age
Remaining
Years
Reduced
($)
Future
worth
Reduced
($)
Full ($)
Future
Worth
($)
Self-
delayed
($)
Future
Worth
Self-
delayed
($)
Spouse-
delayed
($)
Future
Worth
Spouse-
delayed
($)
61 25

62 24 16800 16800

63 23 16800 34608

64 22 16800 53484

65 21 16800 73494

66 20 16800 94703

67 19 16800 117185 24000 24000

12000 12000
68 18 16800 141016 24000 49440

12000 24720
69 17 16800 166277 24000 76406

12000 38203
70 16 16800 193054 24000 104991 29760 29760 29760 70255
71 15 16800 221437 24000 135290 29760 61306 29760 104231
72 14 16800 251524 24000 167408 29760 94744 29760 140245
73 13 16800 283415 24000 201452 29760 130189 29760 178419
74 12 16800 317220 24000 237539 29760 167760 29760 218884
75 11 16800 353053 24000 275792 29760 207585 29760 261777
76 10 16800 391036 24000 316339 29760 249801 29760 307244
77 9 16800 431298 24000 359319 29760 294549 29760 355439
78 8 16800 473976 24000 404879 29760 341982 29760 406525
79 7 16800 519215 24000 453171 29760 392260 29760 460677
80 6 16800 567168 24000 504362 29760 445556 29760 518077
81 5 16800 617998 24000 558623 29760 502049 29760 578922
82 4 16800 671878 24000 616141 29760 561932 29760 643417
83 3 16800 728990 24000 677109 29760 625408 29760 711782
84 2 16800 789530 24000 741736 29760 692693 29760 784249
85 1 16800 853702 24000 810240 29760 764014 29760 861064
Total Future Worth 853702 810240 764014 861064
Total (without the
time value of
money
considered)
403200 456000 476160 512160
Question 3
Using the table in Question 2, the graphs of Future Worth, $ VS Age, years has been plotted as below:
0
100000
200000
300000
400000
500000
600000
700000
800000
900000
60 65 70 75 80 85
F
u
t
u
r
e

W
o
r
t
h
,

$

Age, Years
Future Worth Values of All Plans
Plan A
Plan B
Plan C
Plan D
Question 4

Assuming both of them are taking Plan A,
Total Future Worth = (2) (853702)
= $ 1707404
Assuming both of them are taking Plan B,
Total Future Worth = (2) (810240)
= $ 1620480
Assuming both of them are taking Plan C,
Total Future Worth = (2) (764014)
= $ 1528028
Assuming both of them are taking Plan D,
Total Future Worth = (2) (861064)
= $ 1722128
Assuming one of them is taking Plan A and another one is taking Plan B,
Total Future Worth = 853702 + 810240
= $ 1663942
Assuming one of them is taking Plan A and another one is taking Plan C,
Total Future Worth = 853702 + 764014
= $ 1617716
Assuming one of them is taking Plan A and another one is taking Plan D,
Total Future Worth = 853702 + 861064
= $ 1714766
Assuming one of them is taking Plan B and another one is taking Plan C,
Total Future Worth = 810240 + 764014
= $ 1574254

Assuming one of them is taking Plan B and another one is taking Plan D,
Total Future Worth = 810240 + 861064
= $ 1671304
Assuming one of them is taking Plan C and another one is taking Plan D,
Total Future Worth = 764014 + 861064
= $ 1625078

The largest value of total future worth is $ 1722128, whereby both of them are taking
Plan D. However, this combination is not possible as Plan D is a combination of Plan B
and Plan C with an additional spousal benefits and it is meant for two person. The next
highest total is the combination of Plan A and Plan D which is not possible as well.
Hence, the best combination of plans for Brad and Sheryl is that the both of them to take
Plan A.

















Question 5
Question: How inflation will affect Brad and Sheryls real returns on their
investments?
Brad and Sheryl have invested their money for retirement benefits and their
investments make an average of 6% interest per year. Base on the economic
analysis conducted in this case study, there is one factor that is not being discussed
while making investments. Brad and Sheryl should consider how inflation will affect
the real returns on their investment. This is an especially important issue for Brad
and Sheryl who are living on a fixed income and are soon-to-be retirees. Inflation, an
economic concept is an economy-wide sustained trend of increasing prices from one
year to the next. The rate of inflation is important as it represents the rate at which
the real value of an investment is eroded and the loss in spending power over time.
An economic analysis of inflation will definitely help Brad and Sheryl to estimate the
real returns of their investments to help them to maintain their normal living standard.
As an investor, we should always consider the rate of return. Most investors often
look only at the nominal return and neglect the purchasing power altogether.
However, Brad and Sheryl can overcome the effects of inflation on investment
returns by investing in a number of inflation-protected securities such as inflation-
indexed bonds or Treasury Inflation-Protected Securities (TIPS). These types of
investment move with inflation and thus are immune to inflation risk.