A person invests 2,000 a year in a retirement account, how much will they have?
a. In 5 years at 6% $2,697.70
b. In 20 years at 10% $14,656.14
c. In 40 years at 12% $237,295.45
What patterns did you observe as time or interest rates change and why?
d. Someone called their broker to inquire about purchasing a bond of Storage Systems. The broker quotes a price of $1,180. Jim is concerned that the bond might be overpriced based on the facts involved. The $1,000 par value bond pays 14% interest and it has 25 years remaining until maturity. The current yield to maturity on similar bonds is 12%. Compute the new price of the bond and comment on whether you think it is overpriced in the marketplace.