FIN 361 Fall 2024 Problem Set 1 Question 7 [10 points] Suppose a 10-year, $1,000 bond with a 4% coupon rate and semiannual coupons is trading for a price of $1,123.61. a) What is the bond's yield to maturity (expressed as an APR with semiannual compounding)? b) If the bond's yield to maturity changes to 6% APR, what will the bond's price be? c) If the coupon rate were 3% but everything else stayed the same, would the price change from part a) to part b) be larger or smaller (on a percentage basis)? (Hint: no calculations needed) FIN 561 rall ZUZ4 rroblem >et 1 Question 3 [20 points] You are 25 years old and have decided to start saving for your retirement. You plan to save $8,000 at the end of each year (so the first deposit will be one year from now) and will make the last deposit when you retire at age 65. Suppose you earn 8% per year on your retirement savings. a) How much will you have saved for retirement? (Hint: draw the timeline of cash flows to help structure your answer) b) How much will you have saved if you wait until age 35 to start saving (again, with your first deposit at the end of the year)? Now, instead imagine that you earn $80,000 in income at age 25. You plan to save 10% of your income each year, starting one year from now and expect your income to grow by 4% each year (including this year). ) Now how much will you have saved for retirement at age 65?7 Assume the return on retirement saving is still 8%