Q1

You plan to retire in the next 30 years. At retirement, your goal is to spend five years travelling around the world. To achieve this, you want to place an annual deposit (end-of-year) in an investment account for the next 30 years. The last deposit will be on the day just before you retire. To ensure that you can travel in style, on the first day of retirement, you will immediately withdraw $250,000 per year for the next five years.

You believe your investment can earn 10% (APR) during the whole period concerned.

(a) Compute the annual deposit each year:

i) Draw the necessary time line(s);

ii) Show all equations and workings.

(b) In your savings plan, how confident you have in meeting your goal. In other words, what factor(s) may prevent you from reaching your goal

Q2

Three years ago, Zoe purchased a ten-year corporate bond with 8% semi-annual coupon payment and the yield-to-maturity was 10% at time of purchase. Today, Zoe just received the coupon payment. In view of the changing market condition, Zoe decided to sell the bond at a market price of $962.74.

(a) At what price should Zoe buy the bond three years ago? (Final answer in 2 decimal places)

(b) What is Zoe's holding period return after selling the bond today? (Final answer in % and 2 decimal places)

Q3

(a) Determine the future value of the following cash flows at the end of year 20 with an annual interest rate of 18% compounded monthly.

0 1 2 3 20 Year 0

$200 $200 $200 $200

(b) You are evaluating a 10-year, $1,000 par value bond. Its coupon rate is 8%, and the coupon is paid quarterly. If you require an effective annual interest rate of 10%, how much should you pay for the bond (keep 2 decimal places in % workings: i.e. x.xx%)?