Complete the following table and draw a graph showing how bond price

for each bond changes over time as they move towards their maturity

dates. Describe the relationship between bond prices and time

remaining for maturity.

Years

remining

to

maturity

BOND A

Coupon rate $=8\%$ p$.$a$.$

Market interest rate $=$

$6\%$ p$.$a$.$

BOND B

Coupon rate $=6\%$ p$.$a$.$

Market interest rate $=$

$6\%$ p$.$a$.$

BOND C

Coupon rate $=4\%$ p$.$a$.$

Market interest rate $=$

$6\%$ p$.$a$.$

$10$

$9$

$8$

$7$

$6$

$5$

$4$

$3$

$2$

$1$

$0$ You have $20$ years left for your retirement. You wish to accumulate a

sum large enough by that time which will allow you an annual withdrawal

of $$100,000$ every year for $30$ years. The average interest rate between

now and the $20$th year is likely to be $4\%$ p$.$a$.$ From then onwards, for

the next $30$ years, it is likely to be $6\%$ p$.$a$.$

How much should you save in an interest$-$bearing account at the end of

each month to be able to have enough money at the time of retirement

which will allow you your desired withdrawal of $$100,000$ every year

for $30$ years after retirement? Assume that the interest in the

interest$-$bearing account is compounded monthly.