1. Exactly five years from today, assume that your $160M DB plan must make a $30.0M payment. The payment is quoted in today’s dollars, thus you do not need to adjust for annual inflation of 2.0%. You do, however, need to account for an annual tax rate of 35.0%, which will be applied to any appreciation of YOY plan assets. In order to make the payment five years from now without falling below the original $160M in plan assets, the required real rate of before tax return is closest to:
A. 1.2%
B. 2.3%
C. 3.5%
D. 5.4%
E. 5.8%
2. Most people purchase insurance because they are _____.
risk-tolerant
risk-averse
risk-return
risk indifferent
3. Nominal interest is defined as equal to ______.
the real interest rate plus expected rate of inflation
the expected rate of inflation plus the discount rate
the forward rate plus the spot rate divided by Z
the Fisher rate minus the real interest rate