ou manage a pension fund that will provide retired workers with lifetime annuities. You determine that the payout re going to closely resemble level perpetuities of $2.1 million per year. The interest rate is 10%. You plan to fully fu obligation using 5-year and 20-year maturity zero-coupon bonds. Required: . How much market value of each of the zeros will be necessary to fund the plan if you desire an immunized posit ound intermediate calculations. Enter your answers in millions. Round your answers to 1 decimal place.) Five-year Twenty-year Market Value million million

ou manage a pension fund that will provide retired workers with lifetime annuities. You determine that the payout re going to closely resemble level perpetuities of $2.1 million per year. The interest rate is 10%. You plan to fully fu obligation using 5-year and 20-year maturity zero-coupon bonds. Required: . How much market value of each of the zeros will be necessary to fund the plan if you desire an immunized posit ound intermediate calculations. Enter your answers in millions. Round your answers to 1 decimal place.) Five-year Twenty-year Market Value million million

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Creating a retirement fund Personal Finance Problem To supplement your retirement, you estimate that you need to accumulate $320,000 exactly 39 years from today. You plan to make equal, end-of-year deposits into an account paying 7% annual interest. a. How large must the annual deposits be to create the $320,000 fund by the end of 39 years? b. If you can afford to deposit only $1,300 per year into the account, how much will you have accumulated in 39 years? a. The annual deposits to create the $320,000 fund by the end of 39 years should be $. (Round to the nearest cent.)
Prudential Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs K200, 000 per year forever. If the required return on this investment is 6.5 percent, how much will you pay for the policy? Suppose the Prudential Life Insurance Co. counter offers and told you that the policy costs K340,000. At what interest rate would this be a fair deal?
Suppose a graduate student receives a non-subsidized student loan of $11,000 for each of the 4 years the student pursues a PhD. If the annual interest rate is 3% and the student has a 10-year repayment program, what are the student's monthly payments on the loans after graduation? (Round your answer to the nearest cent.)
After examining the various personal loanrates available toy, you find the can borrow funds from an investment company at 12%Compounded monthly or from a bank at 13% compounded annually. Which alternative is the most attractive?
A borrower can obtain an 80 percent loan with an 9 percent interest rate and monthly payments. The loan is to be fully amortized over 25 years. Alternatively, he could obtain a 95 percent loan at an 9.5 percent rate with the same loan term. The borrower plans to own the property for the entire loan term. Required: a. What is the incremental cost of borrowing the additional funds? (Hint: The dollar amount of the loan does not affect the answer.) b. What is the incremental cost of borrowing the additional funds if 2 points were charged on the 95 percent loan? c. What is the incremental cost of borrowing the additional funds if the borrower planned to own the property for only five years? Complete this question by entering your answers in the tabs below. Required A Required B Required C What is the incremental cost of borrowing the additional funds if the borrower planned to own the years? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Incremental…
Your company sponsors a 401(k) plan into which you deposit 10 percent of your $120,000 annual Income. Your company matches 75 percent of the first 10 percent of your earnings. You expect the fund to yield 12 percent next year. Assume you are currently in the 31 percent tax bracket. a. What is your annual Investment in the 401(k) plan? (Round your answer to 1 decimal place. (e.g., 32.1)) b. What is your one-year return? (Round your answer to 3 decimal places. (e.g., 32.161)) a. Annual investment b. One-year return 184.000 %
Your younger sibling asks you to borrow $20. You, a smart financial professional, agree but also charge interest on the $20. You plan to collect $5 from your sibling each week for 8 weeks to repay the initial loan. What is the NPV of this project, assuming you invest the $5 at 12%? a. $4.84 b. $2.11 c. $0 d. $6.88
Suppose a graduate student receives a non-subsidized student loan of $11,000 for each of the 4 years the student pursues a PhD. If the annual interest rate is 5% and the student has a 10-year repayment program, what are the student's monthly payments on the loans after graduation? (Round your answer to the nearest cent.)
My pension plan will pay me $10,500 once a year for a 10-year period. The first payment will come in exactly five years. The pension fund wants to immunize its position. Required: a. What is the duration of its obligation to me? The current interest rate is 5.0% per year. b. If the plan uses 5-year and 20-year zero-coupon bonds to construct the immunized position, how much money ought to be placed in each bond? c. What will be the face value of the holdings in each zero? Complete this question by entering your answers in the tabs below. Required A Required B Required C What is the duration of its obligation to me? The current interest rate is 5% per year. Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Duration years
Find the monthly payment for the 15- year option.
A borrower bought a house for $300,000; he can obtain an 80% loan with a 20-year fully amortizing, 7% interest rate and monthly payment. Alternatively, he could get a 30-year fully amortizing 90% loan at 9% What is the incremental cost of borrowing the additional fund?
Your friend is analyzing a perpetuity that is slightly different from those you've encountered before. Your friend's possible investment pays $3,100 annually but the payments being immediately. The appropriate rate of return for the risk is 9% What is the market value of this contract (round to the nearest dollar)?

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