enefits. Therefore, you opened your retirement account with a 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. What is the face value, not the actual value, of the bond that you will
Problem Outline Part A
By the end of this year, you will 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 your retirement account with a 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.
- What is the face value, not the actual value, of the bond that you will be investing in?
- Calculate the monthly payment in your retirement account to be able to achieve the plan mentioned above.
- How much will your inheritors receive?
Problem Outline Part B
Suppose you think if you were to retire right now, you would have needed $50,000 each year to supplement your social security and maintain your desired lifestyle. But because there is on average 3% annual inflation, when you retire 30 years from now, you need more than $50,000 per year to maintain the lifestyle you like.
- How much will be equivalent to $50,000 at retirement time when adjusted for inflation?
- What will be the face
value of the bond that yields the equivalent of $50,000, found in #4 of Part B in coupon payment? - How much annual payment in the retirement account is needed to accumulate the amount needed to purchase the bond when retiring?
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