Question

MT

11)What is the price of a 10-year bond paying an annual coupon rate of 9.8%, but paying it semiannually, per face (par) value of $1,000 if the annual market rates for these bonds are 11%? Answer to the nearest cent, xxx.xx and enter without the dollar sign.

12) You put aside $100,000 in year t = 0, and let it grow at 6.1% interest for 4 years. Exactly one year after that you start to withdraw your money for 3 years in equal amounts until it is exhausted. How much can you withdraw per year? Answer to the nearest cent, xxx.xx and enter without a dollar sign.

Answer 1

11)	Price of bond	=-pv(rate,nper,pmt,fv)
		= $ 928.30
	Where,
	rate	=	11%/2	=	0.055
	nper	=	10*2	=	20
	pmt	=	1000*9.8%*6/12	=	$       49.00
	fv			=	$ 1,000.00
12)	$     47,496.72
Working:
Step-1:Value of money 4 years from now
Future Value	=fv(rate,nper,pmt,pv)		Where,
	$ 1,26,724.78			rate	=	6.10%
				nper	=	4
				pmt	=	0
				pv	=	$       -1,00,000
Step-2:Calculation of annual withdrawal
Annual Withdrawal	=pmt(rate,nper,pv,fv)		Where,
	$     47,496.72			rate	=	6.10%
				nper	=	3
				pv	=	$       -1,26,725
						0