Question

In: Finance

By the end of this year you would be 35 years old and you want to...

By the end of this year you would be 35 years old and you want to plan for your retirement. You wish to retire at the age of 65 and you expect to live 20 years after retirement. Upon retirement you wish to have an annual sum of $50,000 to supplement your social security benefits. Therefore, you opened now your retirement account with 7% annual interest rate. At retirement you liquidate your account and use the funds to buy an investment grade bond which makes $50,000 annual coupon payments based on a 6 % coupon rate, throughout your retirement years.

How much will your inheritors receive?

Solutions

Expert Solution

Inheritors will receive face value of the bond.

Face value of bond= C/r

Where

C= annual coupon (given as $50,000) and r= coupon rate (given as 6%)

Plugging the values,

Amount received by inheritors= 50000/0.06 = $ 833,333.33

jeff jeffy answered 2 years ago
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