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Ch 13 Questions 1, 2, 3, 4, 5, 8, 9, 11, 12, 13, 15, 16 Ch 13 Problems 13.2, 13.3, 13.4 |
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1). Why is Retirement perceived as so important to people?
Answer
This is because retirement provides an opportunity to people to maintain their current lifestyle
and the desire to enjoy their envisioned lifestyle.
2). List the principle concerns of people in planning retirement
Answer
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The Concerns for expenses that are to be paid in retirement
•
The expected health care costs in retirement
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The need to have a steady flow of income
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The desire to save much money
3) Explain the relationship of lifecycle theory to retirement planning
The Life-Cycle theory is a theory that explains the savings and spending behavior pattern of
people in the course of their life. It assumes that people make their financial plans with an eye
into the future. For instance, people will spend and save less in their early years, spend less and
save more during middle age for them to enjoy their savings when they retire. In retirement there
is less income and high spending on the savings.
4). Explain the difference between a defined benefit and a defined contribution plan
Answer
A Defined benefit plan is where the post-employment benefits are predetermined and the
employer pay contributions to the plan which is invested and on which the expected returns are
to enable the meeting the obligations of the defined post-employment benefits. If the fund is in
excess there could be a break in the contributions but if the fund is insufficient the employer
makes additional payments into the plan to meet the deficit.
A defined contribution plan is a plan in which the employer together with the current employees
pays regular contributions to a plan a defined amount. The contributions are investment and the
contributions together with benefits earned paid to the employee after leaving employment that is
when he/she retires. The benefits are not usually known to the beneficiary until retirement. The
investment benefits depend upon the performance of the investment.
5).Which plan is more likely to be attractive to a young person, a defined benefit or a
defined contribution plan?
Answer
A Defined benefit plan is more likely to be attractive to a young person because of the assurance
of the benefits upon retirement. Also it does not require employees to make contributions to the
plan.
8).When would a mutual fund be more attractive than an annuity?
Answer
A mutual fund is a kind of investment that does not offer guaranteed payments but it is more
attractive to an investor because of the possibility to withdrawal from a contract easily without
attracting high withdrawal charges unlike in annuity. This flexibility also makes a mutual fund
more liquid than an annuity.
9). What does capital needs analysis provide?
Answer
Capital ...