Question 5 in Exam 1 QMB612

In order to rein in costs, she has negotiated with the employee’s union to let some employees retire early and others transition away from Broke over the next six years. As part of this agreement, she needs to make sure Broke has sucient cash to make the following agreed annual payments for these departing employees. The amounts are in thousands of dollars. The annual payments must be made at the beginning of each year. The union will approve an amount that, along with earnings on its investment, will cover the annual payments. To minimize risk, invest- ment of the funds will be limited to savings (at 3.250% annually) and government securities, at prices quoted on The Wall Street Journal. Broke is excited to use the knowledge learned from this class to create a plan for making the annual payments by investing in the following securities (par value = 1000). Any amounts not invested in these securities will be placed in savings. Assume that interest is paid annually. Once Broke finalizes the plan, she will present it to the union for final approval before implementation. Then, Broke will deposit the amount with a trustee to fund the plan. a) Write down a formulation b) Using Excel, solve the formulation you wrote down above to find the minimum cash settlement needed to fund this plan. c) Suppose Broke can negotiate with the union to have the annual payments made at the end of the year instead. Reformulate this problem to accommodate this change. How much would Broke save if the union agrees to this change? Be sure to include the updated formulation