Question 1: Retirement Savings.
You believe you will need to have saved $500,000 by the time you retire in 40 years in order to live comfortably. If the interest rate is 6% per year, how much must you save each year until retirement to meet your retirement goal?
Question 2: Bond Yields.
An AT&T bond has 10 years until maturity, a coupon rate of 8% and sells for $1,100.
a. What is the current yield on the bond?
b. What is the yield to maturity?
Question 3:
A General Motors bond carries a coupon rate of 8%, has 9 years until maturity and sells at a yield to maturity of 7%.
a. What interest payments do bondholders receive each year?
b. At what price does the bond sell? (Assume annual interest payments.)
c. What will happen to the bond price if the yield to maturity falls to 6%.