According to conventional wisdom regarding asset allocation by age, you should hold a proportion of stocks equal to 100 minus your age. Therefore, if you are 40 years old, 60% of your portfolio should consist of equity. Criteria might be better changed to 110 minus your age or 120 minus your age because life expectancy increasing.
By deducting your present age from 100, you can utilize rule of thumb to determine your asset allocation. It implies that as you get older, you should shift away from equity funds and toward debt funds and fixed income assets in your asset allocation.
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Answer:
Scenario 1: A risk-averse person will choose option B.
Scenario 2: A risk-averse person will choose option D.
Scenario 3: A risk-averse person will choose option F.
Explanation:
a) Data and Calculations:
Scenario 1:
Option A Winning Expected
Probability Value
50% $1,000 $500
50% 0 0
Total winning = $500
Option B Winning Expected
Probability Value
100% $500 $500
0% 0
Total winning = $500
Scenario 2:
Option C Winning Expected
Probability Value
40% $90 $36
60% 110 66
Total winning = $102
Option D Winning Expected
Probability Value
100% $90 $90
Scenario 3:
Option E Winning Expected
Probability Value
50% $0 $0
50% 100 50
Total winning = $50
Option F Winning Expected
Probability Value
50% $20 $10
50% 60 30
Total winning = $40
b) The risk-averse person tries to avoid risks at all times. Her choice of investment favors an option that has a 100% probability of winning, thereby eliminating risks in all ramifications. This is why she is never indifferent between two options as she factors in the probability of losing.
Answer:
FINANCING ACTIVITIES.
Explanation:
Financing activity is one of three sections of the statement of cashflow. The other two being operating and investing activities. The financing activity comprises PAYMENT FOR CASH DIVIDENDS, borrowing and repaying short term and long term loans.
Answer: $8,391.90
Explanation:
So the company borrowed $40,000 from a bank.
They are to pay 7% interest on the note per year for 6 years.
We are to find the annual payments.
7% represents a constant payment schedule per year so we can use an Annuity formula.
Seeing as the Annuity factor has been calculated for us already we don't need to formula though.
The present value of an annuity factor for 6 years at 7% is 4.7665.
Calculating the present value of the annual payment can be done as follows,
= Amount / PVIFA (Present Value Interest Factor for an Annuity)
= 40,000/4.7665
= 8391.90181475
= $8,391.90
The annual payments equal $8,391.90.