Kenny is planning for retirement in 20 years. Currently, he has $300,000 in a savings account...

Kenny is planning for retirement in 20 years. Currently, he has $300,000 in a savings account
and $600,000 in a mutual fund. Moreover, he plans to add to his savings by depositing $3,000
per month in his savings account at the beginning of each month for the next twenty years
until retirement. The savings account will return 5% APR compounded monthly and the
investment in the mutual fund will return 8% compounded annually.
(a) How much money will Kenny have at retirement 20 years later?
(b)Kenny expects to live for 20 years after he retires and at retirement he will
deposit all of his savings in a bank account paying 2% APR compounded
monthly. If he wants to withdraw an equal sum of money at the end of
each month from the bank account for financing his daily expenses after
retirement, how much can he withdraw each time?
(c)If the yield to maturity of a bond is higher than its coupon rate, the par
value of the bond should be higher than its price, resulting in a discount
bond. Conversely, if the yield to maturity of a bond is lower than its
coupon rate, the par value of the bond should be lower than its price,
resulting in a premium bond. Critically discuss this phenomenon. (word
limit: 150 words)

Expert Solution

1-	future value of savings in savings account	pv*(1+r)^n	300000*(1.004166)^240	813662.4295
	future value of savings in mutual fund	pv*(1+r)^n	300000*(1.00666)^240	1475693.485
	future value of annuity at the time of retirement =Using future value function in MS excel	fv(rate,nper,pmt,pv,type) rate =5/12 =.4166% nper =20*12 =240 pmt =-3000 pv =0v type =1	FV(0.4166%,240,-3000,0,1)	$1,238,123.73
	total value of investment at time of retirement			3527479.648

2-	Value of monthly annuity =Using pmt function in M S excel	pmt(rate,nper,pv,fv,type) rate =2/12 =.1666% nper =20*12 =240 pv =-3527479.648 fv =0 type =0	PMT(0.1666%,240,-3527479.648,0,0)	$17,843.60

3-	yes it is true that market interest rate and bond prices are inversely related, as if the market rate of interest is more than the coupon rate, bonds would be called discount bond and in this case par value would be more than the market price while if market rate of interest is lower than the coupon rate, this would be a premium bond and its market price would be lower than the par value so it is called premium bond

jeff jeffy answered 3 days ago

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