Question

6. Suppose today that you paid $1,200 for a 30-year bond that pays $50 at the end of Years 1-29 and $1500 at the end of Year 30. What would be the bond’s IRR? (A bond’s IRR is often called the yield of the bond).

7. I now have $350,000 in the bank. At the end of each of the next 25 years, I withdraw $15,000. If I earn 7 percent per year on my investments, how much money will I have in 25 years?

Answer 1

Solution 6:

Period	Cash Flows	IRR
0	-1200	4.51%
1	50
2	50
3	50
4	50
5	50
6	50
7	50
8	50
9	50
10	50
11	50
12	50
13	50
14	50
15	50
16	50
17	50
18	50
19	50
20	50
21	50
22	50
23	50
24	50
25	50
26	50
27	50
28	50
29	50
30	1500

Solution 7:

Computation of Future value
Year	Beginning balance	Interest earned (7%)	Withdrawl	Ending Balance
1	$350,000	$24,500	$15,000	$359,500
2	$359,500	$25,165	$15,000	$369,665
3	$369,665	$25,877	$15,000	$380,542
4	$380,542	$26,638	$15,000	$392,179
5	$392,179	$27,453	$15,000	$404,632
6	$404,632	$28,324	$15,000	$417,956
7	$417,956	$29,257	$15,000	$432,213
8	$432,213	$30,255	$15,000	$447,468
9	$447,468	$31,323	$15,000	$463,791
10	$463,791	$32,465	$15,000	$481,256
11	$481,256	$33,688	$15,000	$499,944
12	$499,944	$34,996	$15,000	$519,940
13	$519,940	$36,396	$15,000	$541,336
14	$541,336	$37,894	$15,000	$564,230
15	$564,230	$39,496	$15,000	$588,726
16	$588,726	$41,211	$15,000	$614,937
17	$614,937	$43,046	$15,000	$642,982
18	$642,982	$45,009	$15,000	$672,991
19	$672,991	$47,109	$15,000	$705,100
20	$705,100	$49,357	$15,000	$739,457
21	$739,457	$51,762	$15,000	$776,219
22	$776,219	$54,335	$15,000	$815,555
23	$815,555	$57,089	$15,000	$857,643
24	$857,643	$60,035	$15,000	$902,678
25	$902,678	$63,187	$15,000	$950,866

Therefore balance in account after 25 years = $950,866