Question 3:

The VIM on a bond is the interest rate you earn on your investment if interest rates don't change. If you actually sell the bond before it matures, your realized return is known as the holding period yield (HPY).

a. Suppose that today you buy a 8 percent annual coupon bond for $1,030. The bond has 17 years to maturity. What rate of return do you expect to earn on your investment? (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))

Expected rate of return

b-1.Two years from now, the YTM on your bond has declined by 1 percent, and you decide to sell. What price will your bond sell for? (Do not round Intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))

Bond price $

b-2. What is the HPY on your investment? (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))

Question 2:

The Morgan Corporation has two different bonds currently outstanding. Bond M has a face value of $30,000 and matures in 20 years. The bond makes no payments for the first six years, then pays $1,900 every six months over the subsequent eight years, and finally pays $2,200 every six months over the last six years. Bond N also has a face value of $30,000 and a maturity of 20 years; it makes no coupon payments over the life of the bond. The required return on both these bonds is 12 percent compounded semiannually.

What is the current price of Bond M and Bond N? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))

Question 3:

You are planning to save for retirement over the next 30 years. To save for retirement, you will invest 51.200 a month in a stock account in real dollars and 5545 a month in a bond account in real dollars. The effective annual return of the stock account is expected to be 11 percent, and the bond account will earn 7 percent. When you retire, you will combine your money into an account with an 8 percent effective return. The inflation rate over this period is expected to be 4 percent.

How much can you withdraw each month from your account in real terms assuming a 25-year withdrawal period? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Monthly withdrawal $

What is the nominal dollar amount of your last withdrawal? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))