John and Jane Doe are newlyweds with executive track careers at ACME Gadget Company. In five years,
Question:
John and Jane Doe are newlyweds with executive track careers at ACME Gadget Company. In five years, the Does would like to have a family, envisioning two young children, Jack and Jill. With an eye for the future, John and Jane are now looking to ensure that their future family has a place to call home, that their future children will have access to all the education they desire, and that they themselves will be able to enjoy retirement when the time comes. As such, they’ve come to your financial planning company for advice for purchasing a house, planning for retirement, setting up a RESP and for your perspective on a side venture. They’ve provided you with the background and questions below.
Saving for their children’s education
To establish funds for a RESP (to be opened upon the birth of either Jack or Jill, whomever comes first) John has suggested purchasing bonds as a lower risk alternative to more volatile funds. John has identified a 20-year bond with a face value of $10,000 which pays a coupon rate of 9% compounded semi-annually. The bond has 15 years remaining until maturity and a current yield rate of 8%. John can purchase the bond for $10,125. Is this good value?