Sam, 30, earns $60,000 annually, expecting a 2% salary increase yearly. His current job also includes a fully paid health insurance plan and right now he has no retirement savings. He recently inherited $100,000 and plans to save 5% of his salary each year for retirement. He's paid bi-weekly but will invest his savings annually. Deposits will be made annually into an investment starting a year from now, with the last deposit at age 65 when he plans to retire. Sam is considering three investment options for maximizing his inheritance and salary savings for retirement: a. A low-risk money market fund by "RTM Funds" with an expected annual return of 3 %. b. A diversified fund named "Bluewater fund" by "Canada Mutual Fund" with a historical average growth rate of 10 %, although it carries significant risks. In past 10 years, the returns have had a range from 2% to 16%. c. An RRSP account, expected to yield an average annual return of 6%, invested in a mix of Canadian government bonds, highly rated Canadian and U.S corporate bonds, and stocks of stable Canadian and U.S companies. The RRSP has lower volatility compared to the "Bluewater fund." In past 10 years, the fund has generated returns as low as 4% and as high as 8%. Hence the return volatility of investing in the RRSP is less than that of the "Bluewater fund". Given the risk / return characteristics of the different investment vehicles, Sam is currently evaluating the following investment options for retirement. Option 1: Invest the $100,000 in the money - market fund and allocate salary savings to the "Bluewater fund." Option 2: Invest the $ 100,000 in the money - market fund and allocate salary savings to the "RRSP fund." Option 3: Invest the $100,000 in the money - market fund, with half of salary savings in the "RRSP fund" and the other half in the "Bluewater fund." Option 4: He will invest the $100,000 (inheritance) in the money - market fund (today). In addition, he will investment 30% of his savings from the salary into the "RRSP fund" and the rest in the "Bluewater fund". Sam is considering an alternative: pursuing an MBA using part of the inheritance. The program costs $40,000, lasting 2 years. Sam will pay the total cost upfront, starting the program today. Working part-time during the MBA, he will lose savings, requiring $ 20,000 from the inheritance to offset reduced earnings. Health insurance from the university, costing $3,000 annually, brings the total program cost to $46,000. During the MBA, Sam won't invest the remaining inheritance due to unforeseen events. After completing the MBA, Sam anticipes a potential promotion to a $70,000 salary in year three, growing at 3% annually. If promoted, he plans to save 6% of his salary, starting three years from now and continuing until age 65. The remaining inheritance will be invested three years from today, with an expected value of $36,000 accounting for interest in a savings account, assuming no unforeseen financial expenses occur. Considering the MBA option and a three-year delay in retirement investments, Sam evaluates the following strategies: Option 5: Invest inheritance and salary savings in the "Bluewater fund" (first deposit in three years). Option 6: Invest inheritance in the money-market fund (three years from today) and salary savings in the "Bluewater fund." Option 7: Invest inheritance in the "Bluewater fund" (three years from today). Allocate half of salary savings to the "RRSP fund" and the other half to the "Bluewater fund" (first deposit in three years). With a goal of a comfortable retirement for at least twenty years until age 85, Sam seeks the best savings strategy, considering retirees' feedback about CPP income not being sufficient after retirement. Questions 3 and 4: (USE FORMULAS in answer) 3. Briefly discuss which set of options are relatively less risky and which set of options are relatively more risky. 4. What quantitative and non- quantitative factors should Sam consider in making the decision in terms of pursuing the MBA program?