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Bowie, age 52 has come to you for help in planning his retirement

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Question

Bowie, age 52 has come to you for help in planning his retirement.  He works for a bank where he earns $60,000. 

He would like to retire at age 62.  He has consistently earned 8% on his investments and inflation has averaged 3%.  Assuming he is expected to live to age 95 and he has a wage replacement ratio of 80%, how much more will he need at retirement to have the same amount at his death with an equal purchasing power as he will have at his retirement.  Amount at retirement is $1,101,823.40

 
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dominant firm

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Question

Since under price leadership by the dominant firm, the firms in the industry following the leader behave as

perfect competitors or price takers by always producing where the price set by the leader equals the sum of their marginal cost curves, the followers break even in the long run. True or False? Explain.

 
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management and labor

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Question

Every year, management and labor renegotiate a new employment contract by sending their proposals to an arbitrator

who chooses the best proposal (effectively giving one side or the other $1 million). Each side can choose to hire, or not hire, an expensive labor lawyer (at a cost of $200,000) who is effective at preparing the proposal in the best light. If neither hires lawyers or if both hire lawyers, each side can expect to win about half the time. If only one side hires a lawyer, it can expect to win three-quarters of the time. 1. 2. 3. Diagram this simultaneous-move game. What is the Nash equilibrium of the game? Would the sides want to ban lawyers?

 
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dividend

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Question

A stock is currently trading at $45 and pays a dividend of $3.50.  Analysts project a dividend growth rate of

5%.  Your client requires a rate of 12% to meet his stated goal.  Should he purchase this stock?  a. yes, it is undervalued b. no, it is overvalued c. no, the required rate of return is higher than the projected growth rate d. yes, the required rate is higher than the expected rate.

 
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