Mr and Mrs Chew are both 60 now and hope to retire in 5 years. At age 65, they will eachreceive approximately $1,500 per month from CPF LIFE. As they love to travel and desireto spend extended periods overseas, their joint monthly living expenses in retirement areestimated to be $10,000.

 

They currently have $1 million in retirement savings invested in a government bonds fund.This is their only source of retirement savings besides CPF savings. The return on the fundis 4% per year. At retirement, they plan to sell their investments and make annualwithdrawals from the proceeds to cover the difference between their CPF LIFE payoutsand their living expenses. How long can their retirement savings last before they run outof money?

 

Q2) An investor is considering investing in 2 government bonds. Bond A has face value of$1,000, a 8% coupon rate and two years to maturity. Its price is 980. Bond B has face valueof $1,000, a 12% coupon rate and two years to maturity. Its price is $1,050.Compute the 1-year spot rate and the 2-year spot rate.