Answers:
Question no. 2: Interest Rates
The investment plan involves an annuity due (periodical payments at the beginning).
Given, Future Value of Annuity=$1 Million, Interest rate=5% and number of payments= 65-23= 42.
Amount required to be set aside every year = $7042.58
Details of computation as follows:
Question 6 on Bond Valuation
(a) Treasury Bond.
Given, Coupon rate=8.4% per year, Frequency Semiannual, Term to maturity= 5 years and YTM=7.5%.
Let Face Value be $1,000.
Then semiannual interest payment= $1,000*8.4%/2 = $42
Price of the bond is the present value of the cash flow streams associated. Calculated using the PV function of Excel, the price is $1036.957543
Screen shot of function arguments as follows:
As the face value is assumed at $1,000, the price corresponds to 103.695754% of Face Value.
(b) BBB rated Corporate Bond.
Given, Coupon rate=8.4% per year, Frequency Semiannual, Term to maturity= 5 years and YTM=9%.
Let Face Value be $1,000.
Then semiannual interest payment= $1,000*8.4%/2 = $42
Price of the bond is the present value of the cash flow streams associated. Calculated using the PV function of Excel, the price is $976.2618455
Screen shot of function arguments as follows:
As the face value is assumed at $1,000, the price corresponds to 97.626185% of Face Value.
2. Interest Rates You are saving for retirement. To live comfortably, you decide you will need...
2. Interest Rates You are saving for retirement. To live comfortably, you decide you will need to save $1 million by the time you are 65. Today is your 23rd birthday, and you decide, starting today and continuing on every birthday up to and including your 65th birthday, that you will put the same amount into a savings account. If the interest rate is 5%, how much must you set aside each year to make sure that you will have...
3. Interest Rates You have just purchased a home and taken out a $460,000 mortgage. The mortgage has a 30-year term with monthly payments and an APR of 6.08%. a. How much will you pay in interest, and how much will you pay in principal, during the first year? b. How much will you pay in interest, and how much will you pay in principal, during the 20th year (i.e., between 19 and 20 years from now)? 6. Bond Valuation...
A BBB-rated corporate bond has a yield to maturity of 11.8%. A U.S. Treasury security has a yield to maturity of 10.5%. These yields are quoted as APRs with semiannual compounding. Both bonds pay semiannual coupons at an annual rate of 11.0% and have five years to maturity. a. What is the price (expressed as a percentage of the face value) of the Treasury bond? b. What is the price (expressed as a percentage of the face value) of the BBB-rated corporate bond? c. What is the credit...
You are saving for retirement. To live comfortably, you decide you will need to save $4 million by the time you are 65. Today is your 20th birthday, and you decide starting today and continuing on every birthday up to and including your 65th birthday, that you will put the same amount into a savings account. If the interest rate is 5%, how much must you set aside each year to make sure that you will have $4 million in...
You are saving for retirement. To live comfortably, you decide you will need to save $1 million by the time you are 65. Today is your 30th birthday, and you decide, starting today and continuing on every birthday up to and including your 65th birthday, that you will put the same amount into a savings account. If the interest rate is 8%, how much must you set aside each year to make sure that you will have $1 million in...
You are saving for retirement. To live comfortably, you decide you will need to save $1 million by the time you are 65. Today is your 31st birthday, and you decide, starting today and continuing on every birthday up to and including your 65th birthday, that you will put the same amount into a savings account. If the interest rate is 4%, how much must you set aside each year to make sure that you will have $1 million in...
A BBB-rated corporate bond has a yield to maturity of 6.3 % A U.S. treasury security has a yield to maturity of 4.3 % These yields are quoted as APRs with semiannual compounding. Both bonds pay semi-annual coupons at a rate of 5.0 % and have five years to maturity. a. What is the price (expressed as a percentage of the face value) of the treasury bond? b. What is the price (expressed as a percentage of the face value)...
A BBB-rated corporate bond has a yield to maturity of 6.4%. A U.S. treasury security has a yield to maturity of 4.4%. These yields are quoted as APRs with semiannual compounding. Both bonds pay semi-annual coupons at a rate of 4.7% and have five years to maturity. a. What is the price (expressed as a percentage of the face value) of the treasury bond? b. What is the price (expressed as a percentage of the face value) of the BBB-rated...
A BBB-rated corporate bond has a yield to maturity of 10.8 %. A U.S. treasury security has a yield to maturity of 9.5 %. These yields are quoted as APRs with semiannual compounding. Both bonds pay semi-annual coupons at a rate of 10.1 % and have five years to maturity. a. What is the price (expressed as a percentage of the face value) of the treasury bond? b. What is the price (expressed as a percentage of the face value)...
A BBB-rated corporate bond has a yield to maturity of 7.9%. AU.S. Treasury security has a yield to maturity of 6.0%. These yields are quoted as APRs with semiannual compounding. Both bonds pay semi-annual coupons at a rate of 6.4% and have five years to maturity. a. What is the price (expressed as a percentage of the face value) of the Treasury bond? b. What is the price (expressed as a percentage of the face value) of the BBB-rated corporate...