Question
Suppose you want to begin saving for college for your daughter that will be born in the coming days. You anticipate sending her to Harvard,
Suppose you want to begin saving for college for your daughter that will be born in the coming days. You anticipate sending her to Harvard, where current annual tuition/fees is $70,250 per year. You expect these costs to increase at a rate of 4% per year until she finishes college. She will begin attending in exactly 18 years and you hope to have saved for all four years of her college by the time she begins attending in 18 years. In other words, you anticipate having saved for the entire (four-year) cost of college in 18 years. You anticipate putting your savings in an index fund that pays 12% per year on average. How much money do you need to save per year in order to send her to Harvard in 18 years? (assume that all interest will compound annually) Answers possible: $8,207
$7,964
$8,520
$9,168
$9,863
$12,086
$10,554
$11,635
Although rare, a type of bond that has a floating coupon is called an "income bond", where the coupon rate is determined by a stated percentage of net income earned each year in the future. To price these bonds, one must forecast future net income. Suppose that you have done this type of forecasting and and anticipate that net income in each of the next five years will be $1.6 million in year 1, $2.1 million in year 2, $1.9 million in year 3, $2.2 million in year 4, and $1.8 million in year 5. The stated percentage of net income that will determine the coupon in each year is 0.005%. Given this information, what is the price of this floating coupon bond, that will mature in 5 years, has a $1,000 face value, and a yield to maturity of 7.5%?
(assume that the floating coupons are paid annually)
Answers Possible:$1,000
$955.68
$912.85
$1,015.52
$1,152.02
$990.63
$1,083.37
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