Exam 2 Review ProblemsBUA234Instructor: Jim Wehrley1. Joe is 60 and wants to retire in 5 years. He makes $50,000 the 1st year and will put 10% of his annual income in a 401k for the next five years—end of year contributions. His company contributes 4% of his salary each year- end of year contributions. Joe expects to be in the 25% tax bracket while working and 10% tax bracket during retirement. To simplify, he expects his salary will not increase. If Joe takes out all his 401k money at the beginning of retirement, what will be the before tax value of his 401k?What will be the after tax value? Use 9% annual return. 2. Joe is 60 and wants to retire in 5 years. He will invest $4,000 in a Roth IRA for the next five years—end of year. He expects to earn 8% a year before retirement. Joe expects to be in the 17% tax bracket while working and 10% tax bracket during retirement. He expects his salary will increase at the rate of inflation, 3% annually. Whatwill be the before tax value of the Roth IRA at retirement? What will be the after tax value of the Roth IRA at retirement? Assume Joe is not taxed for any withdrawals. 3. You buy $100,000 worth of stock every year. Last year, you bought at $10 per share. This year, you will buy at $20 per share. What is your average share price? Show your work. 4. Joe has $1,000,000. Assume he is in the 15% tax bracket. a. Joe invests the money at 10% before tax. Joe will pay tax annually on the investedprofits. He is in the 15% tax bracket. How much will Joe have after tax at the end of 10 years? b. If Joe invested in a stock that appreciated 10% annually and sold the stock in 30 years, how much would Joe have in 30 years, after tax? Assume the capital gains tax on the sale of the stock will be 15% in 30 years. 5. You can invest in Investment A at an annual tax free rate of 5 percent or invest in Investment B at an annual before tax rate of 10 percent. Your (Marginal) Tax Rate is 40%. Which investment would you choose? 6. Assume you are 25 years old and have $100,000. Assume you are invested 80% in a bond mutual fund and 20% in a stock mutual fund. Justify your asset allocation or provide a different asset allocation with a justification.7. You are trying to determine how much life insurance to buy. You would like to provide the following for your family: 1) Funds for the funeral ($5,000); 2) $100,000 for living costs for the first year with an increase of 4% per year for four additional years. For all five years, the funds would be available at the beginning of the year. Assume the life insurance proceeds will return 6% annually after taxes. How much life insurance should you buy? (10 points)8. You have an opportunity to invest in a Roth IRA or a tax deductible traditional IRA. In either case, you would contribute $3,000. You are in the 25% tax bracket. You plan toretire in 35 years. At this time, you will withdraw all of your retirement savings. You expect to be in the 22% tax bracket at the time of retirement. You expect a 7% annual return. With the traditional IRA, assume you invest the tax savings tax deferred for 35 years. That is, you buy stock and do not sell it for 35 years and pay the tax at that time. Should you invest in the Roth IRA or traditional