dams fellow graduate, Jenna, has been trying to decide how much of her new salary she could save for retirement. Jenna is considering putting $4,100 of her annual savings in a stock fund. She just turned 22 and has a long way to go until retirement at age 65, and she considers this risk level reasonable. The fund she is looking at has earned an average of 8.25% over the past 15 years and could be expected to continue earning this amount, on average. While she has no current retirement savings, four years ago Jennas grandparents gave her a new 30-year U.S. Treasury bond with a $15,000 face value with 3.00% semiannual

Jenna wants to know her retirement income if she both (1) sells her Treasury bond at its current market value and invests the proceeds in the stock fund and (2) saves an additional $4,100 at the end of each year in the stock fund from now until she retires. Once she retires, Jenna wants those savings to last until she is 96.

5. Suppose Jennas Treasury bond has a coupon interest rate of 3.00%, paid semiannually, while current Treasury bonds with the same maturity date have a yield to maturity of 1.00% (expressed as an APR with semiannual compounding). If she has just received the bonds 8th coupon, what is the value of Jennas Treasury Bond today?

6. Suppose Jenna sells the bond, reinvests the proceeds, and then saves as she planned. If, indeed, Jenna earns a 8.25% annual return on her savings, how much could she withdraw each year in retirement? (Assume she begins withdrawing the money from the account in equal amounts at the end of each year once her retirement begins.)

Question 5 (12 pts): What is the value today of the Treasury Bond? T-Bond Face Value Coupon Rate Semiannual Pmt Remaining Term (years) Current YTM PV Hint: Step 1: Find how much money will Jenna save by the time she retires. Question 6 (12 pts): Initial Investment - Treasury Bond PV Annual investment in stock fund Number of years Jenna saves money (years) Number of years of withdrawal (years) Return on stock fund (r,%) Step 1: FV of saving from age 22 until retirement Annual withdrawal amount beginning in first year of Step 2: retirement Step 2: Once you know how much Jenna saves by retirement, this will become Jenna's PV at that age. Find payment (withdrawal) Jenna gets each year in retirement