Question 1

At the beginning of the year, you bought a $1,000 par value corporate bond with a 6 percent annual coupon rate and a 10-year maturity date. When you bought the bond, it had an expected yield to maturity of 8 percent. Today the bond sells for $1,060.

a. What did you pay for the bond?

b. If you sold the bond at the end of the year, what would be your one-period return on the investment?

Question 2

ABC Berhad is evaluating a security. Calculate the investment's expected return and its standard deviation.

Probability Return

0.15 6%

0.30 9%

0.40 10%

0.15 15%

Question 3

You are trying to plan for retirement in 10 years, and currently you have $100,000 in a savings account and $300,000 in stocks. In addition you plan on adding to your savings by depositing $10,000 per year in your savings account at the end of

each of the next 5 years and then $20,000 per year at the end of each year for the final 5 years until retirement.

a. Assuming your savings account returns 7 percent compounded annually, and your investment in stocks will return 12 percent compounded annually, how much will you have at the end of 10 years?

b. If you expect to live for 20 years after you retire, and at retirement you deposit all of your savings in a bank account paying 10 percent, how much can you withdraw each year after retirement (20 equal withdrawals beginning 1 year after you retire) to end up with a zero balance upon your death?