20. A couple will retire in 50 years; they plan to spend about $34,000 a year (in current dollars) in retirement, which should last about 25 years. They believe that they can earn a real interest rate of 7% on retirement savings.

If they make annual payments into a savings plan, how much will they need to save each year? Assume the first payment comes in 1 year.

Note: Do not round intermediate calculations. Round your answer to 2 decimal places.

How would the answer to part (a) change if the couple also realize that in 20 years they will need to spend $64,000 on their child's college education?

Note: Do not round intermediate calculations. Round your answer to 2 decimal places.

19. a. If you borrow $1,900 and agree to repay the loan in five equal annual payments at an interest rate of 12%, what will your payment be?

Note: Do not round intermediate calculations. Round your answer to 2 decimal places.

b. What will your payment be if you make the first payment on the loan immediately instead of at the end of the first year?

Note: Do not round intermediate calculations. Round your answer to 2 decimal places.

7.a. Many years ago, Castles in the Sand Incorporated issued bonds at face value at a yield to maturity of 8.2%. Now, with 7 years left until the maturity of the bonds, the company has run into hard times and the yield to maturity on the bonds has increased to 15%. What is now the price of the bond? (Assume semiannual coupon payments.)

Note: Do not round intermediate calculations. Round your answer to 2 decimal places.

b. Suppose that investors believe that Castles can make good on the promised coupon payments but that the company will go bankrupt when the bond matures and the principal comes due. The expectation is that investors will receive only 85% of face value at maturity. If they buy the bond today, what yield to maturity do they expect to receive?

Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.

5. Consider three bonds with 6.00% coupon rates, all making annual coupon payments and all selling at face value. The short-term bond has a maturity of 4 years, the intermediate-term bond has a maturity of 8 years, and the long-term bond has a maturity of 30 years.

What will be the price of the 4-year bond if its yield increases to 7.00%?

Note: Do not round intermediate calculations. Round your answer to 2 decimal places.

What will be the price of the 8-year bond if its yield increases to 7.00%?

Note: Do not round intermediate calculations. Round your answer to 2 decimal places.

What will be the price of the 30-year bond if its yield increases to 7.00%?

Note: Do not round intermediate calculations. Round your answer to 2 decimal places.

What will be the price of the 4-year bond if its yield decreases to 5.00%?

Note: Do not round intermediate calculations. Round your answer to 2 decimal places.

What will be the price of the 8-year bond if its yield decreases to 5.00%?

Note: Do not round intermediate calculations. Round your answer to 2 decimal places.

What will be the price of the 30-year bond if its yield decreases to 5.00%?

Note: Do not round intermediate calculations. Round your answer to 2 decimal places.

Comparing your answers to parts (a), (b), and (c), are long-term bonds more or less affected than short-term bonds by a rise in interest rates?

Comparing your answers to parts (d), (e), and (f), are long-term bonds more or less affected than short-term bonds by a decline in interest rates?

6. The following table shows the prices of a sample of Treasury bonds, all of which have coupon rates of zero. Each bond makes a single payment at maturity.

Years to Maturity	Price (% of face value)
1	98.652%
2	95.151
3	91.344
4	87.280

What is the 1-year interest rate?

Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.

What is the 2-year interest rate?

Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.

What is the 3-year interest rate?

Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.

What is the 4-year interest rate?

Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.

Is the yield curve upward-sloping, downward-sloping, or flat?

Is this the usual shape of the yield curve?

Answer rating: 100% (QA)

20 a To calculate the annual savings required we can use the present value of an annuity formula PV A 1 1 1 rn r Where PV Present value of the retirem... View the full answer