10. Financial Planning. Your sister has just won $300,000 (tax- free) in the state lottery. She's...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
10. Financial Planning. Your sister has just won $300,000 (tax- free) in the state lottery. She's decided to quit her job and devote herself to writing novels for the next ten years, using her lottery winnings to support herself. She figures that she will need $30,000 of income at the start of the coming year, $31,000 at the start of next year, $32,000 for the third year, and so on. In order to meet these expenses, she plans to invest her lottery winnings all at once, in bonds. If she finds that she has extra cash in any year (including the first), she plans to place it in her savings account, which pays 3 percent annual interest, but she does not want to purchase any additional bonds in the future. At the start of the coming year, bonds with one-, three-, five-, and 10-year maturities will become available on the market. If a bond matures in k years, it pays $100 at the end of each of k years, as well as $1,000 at the end of the kth year. Currently, one-year bonds sell for $1,075, three- year bonds for $1,100, five-year bonds for $1,200, and ten-year bonds for $1,300. Your sister wants to make sure that the income from her investments will provide for her living expenses year by year. She has asked you to advise her on how many bonds to purchase and has offered to give you any funds left over at the end of the ten-year period. a. Assume that you wish to maximize the amount of money available to you at the end of ten years. How many of each type of bond should your sister purchase? (Assume that these bonds can be purchased in fractional amounts, as part of an investment pool.) b. How much money will be available to you at the end of ten years? c. Suppose you investigate other savings banks and find that interest rates higher than 3 percent are available. What is the minimum interest rate that would alter which of the four types of bonds your sister should buy? 10. Financial Planning. Your sister has just won $300,000 (tax- free) in the state lottery. She's decided to quit her job and devote herself to writing novels for the next ten years, using her lottery winnings to support herself. She figures that she will need $30,000 of income at the start of the coming year, $31,000 at the start of next year, $32,000 for the third year, and so on. In order to meet these expenses, she plans to invest her lottery winnings all at once, in bonds. If she finds that she has extra cash in any year (including the first), she plans to place it in her savings account, which pays 3 percent annual interest, but she does not want to purchase any additional bonds in the future. At the start of the coming year, bonds with one-, three-, five-, and 10-year maturities will become available on the market. If a bond matures in k years, it pays $100 at the end of each of k years, as well as $1,000 at the end of the kth year. Currently, one-year bonds sell for $1,075, three- year bonds for $1,100, five-year bonds for $1,200, and ten-year bonds for $1,300. Your sister wants to make sure that the income from her investments will provide for her living expenses year by year. She has asked you to advise her on how many bonds to purchase and has offered to give you any funds left over at the end of the ten-year period. a. Assume that you wish to maximize the amount of money available to you at the end of ten years. How many of each type of bond should your sister purchase? (Assume that these bonds can be purchased in fractional amounts, as part of an investment pool.) b. How much money will be available to you at the end of ten years? c. Suppose you investigate other savings banks and find that interest rates higher than 3 percent are available. What is the minimum interest rate that would alter which of the four types of bonds your sister should buy?
Expert Answer:
Related Book For
Taxation Of Individuals And Business Entities 2015
ISBN: 9780077862367
6th Edition
Authors: Brian Spilker, Benjamin Ayers, John Robinson, Edmund Outslay, Ronald Worsham, John Barrick, Connie Weaver
Posted Date:
Students also viewed these databases questions
-
Your sister has just won $300,000 (taxfree) in the state lottery. Shes decided to quit her job and devote herself to writing novels for the next ten years, using her lottery winnings to support...
-
Your bank offers 3 percent annual interest on savings deposits. If you deposit $560 today, how much interest will you have earned at the end of one year?
-
Employee says she was forced to quit her job because of her status as a mother of young children. She claimed that her female supervisor created a hostile work environment that violated Title VII....
-
Tom Jones, the mechanic at Golden Muffler Shop, is able to install new mufflers at an average rate of 4 per hour (or about 1 every 15 minute), according to a negative exponential distribution....
-
Three forms of organization for public accountants are unlimited liability partnership, limited liability partnership, or limited liability professional corporation. Required: What are the pros and...
-
Pick a product class and several major brands. What are each brand's points of parity and points of difference? Relate POPs to KSFs, and the PODs to SCAs.
-
Match the measures of worth in the first column with the appropriate unit of measure that results from the analysis. Measure of Worth (a) Annual Worth (b) External Rate of Return (c) Future Worth (d)...
-
1. Develop a CPM/PERT network for Moore House Contractors and determine the probability that the contractors can complete a house within 45 days. Does it appear that the Moores might need to increase...
-
Calculate the following for a 3 ft 4 ft window with the label to the right. The summer design conditions for peak cooling load are 70 and 60% RH inside; 90 and 90% outside; and a peak direct solar...
-
In 1879, A.A. Michelson measured the velocity of light in air using a modification of a method proposed by the French physicist Foucault. Twenty of these measurements are in table 6E.27 (the value...
-
A crane drops a 1.0-kg steel ball onto a steel plate. The ball's speed just before impact is 2.0 m/s. If the average impact force is 300 N, and the ball is in contact with the plate for 0.01 seconds,...
-
Use the Burland-Burbidge method to estimate the expected settlement for a square footing. 8 ft. by 8 ft in plan, that is at the interior of a building. Footing thickness is to be assumed to be 2 ft....
-
Completely detCompletely determined, based on analysis, whether the organization is believed to meet its financial goals, the outlook for growth and sustainability, and thoroughly explained your...
-
Wildhorse Co . reports the following ledger account balances at June 3 0 , 2 0 2 5 : Cash $ 1 0 8 8 Accounts receivable 2 9 8 8 Inventory 3 8 1 4 Prepaid rent 9 6 Equipment 4 3 0 Accumulated...
-
Ilvertown operates several silver mines across the country. On January 1, 2023, it paid $3,067,000 cash to purchase a silver mine with an estimated residual value of $558,000. The company also...
-
Given the following details from a log file that survived a crash. Assuming that a log-based recovery scheme is in place with checkpointing, answer the questions below. Questions: EX ce E ice (a) (7...
-
The input to a purifying process is: Direct Materials Direct Labour Overheads 80,000 kilos @ $8 per kilo 10,000 hours @ $7 per hour $140,000 Normal loss is 5% of input with any scrap sold for $1.50...
-
A sample statistic will not change from sample to sample. Determine whether the statement is true or false. If it is false, rewrite it as a true statement.
-
John Elton is a citizen and bona fide resident of Great Britain (United Kingdom). During the current year, John received the following income: Compensation of $30 million from performing concerts in...
-
Clark owns stock in BCS Corporation that he purchased in January of the current year. The stock has appreciated significantly during the year. It is now December of the current year, and Clark is...
-
What are the primary tax differences between traditional IRAs and Roth IRAs?
-
Test the overall significance of a regression model and identify the components of this test from your computer output.
-
Identify the sample.
-
Based on the strategy, what type of sampling technique will be used to identify the sample? a. Why did you choose this type of technique?
Study smarter with the SolutionInn App