b) You have been hired to run a pension fund for Mackay Inc, a small...
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b) You have been hired to run a pension fund for Mackay Inc, a small manufacturing firm. The firm currently has $5 million in the fund and expects to have cash inflows (receipts) of $2 million a year for the first 5 years followed by cash outflows (payments) of $3 million a year for the next 5 years. Assume that interest rates are at 8%. (i) How much money will be left in the fund at the end of the tenth year? (ii) If you were required to pay a perpetuity after the tenth year (starting in year 11 and going through infinity) out of the balance left in the pension fund, how much could you afford to pay every year? (15 marks)
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