1) Manny and Irene will be retiring in fifteen years and would like to buy a Mexican villa. The villa costs $500,000 today, and housing prices in Mexico are expected to increase by 6% per year. Manny and Irene want to make fifteen equal annual payments into an account, starting today, so there will be enough money to purchase the villa in fifteen years. If the account earns 10% per year, what is the amount of each deposit?
a. $79,885
b. $32,947
c. $37,714
d. $72,623
2) Stock W has the following returns for various states of the economy:
State of the Economy Probability Stock W's Return
Recession 9% -72%
Below Average 16% -15%
Average 51% 16%
Above Average 14% 35%
Boom 10% 85%
Stock W's standard deviation of returns is
a. 37%.
b. 29%.
c. 12%.
d. 43%.