0.25 points Sa QUESTION 7 Suppose a U.S treasury bond will pay $1,700 five yoars
ID: 2783228 • Letter: 0
Question
0.25 points Sa QUESTION 7 Suppose a U.S treasury bond will pay $1,700 five yoars from now.If the going interest rate on 5-year treasury bonds is 4.25%, how much is the bond worth today? $1,380.00 $1,035.45 $1,698.14 $1,090.68 $1,711.95 QUESTION 8 0.25 points Sa Suppose that on your 21st birthday you are given a $1,000,000 trust fund. What interest rate must you earn to ensure that if you withdraw $50,000 per year there is money in the account forever? @2% 50% None of the above @ 20% O 5% Click Save and Submit to save and submit. Click Save All Answers to save all answers. Save All Answers Save an statement.pdf
Explanation / Answer
Answer 7 is $1,380.60.
Maturity Value = $1,700
Time to Maturity = 5 years
Interest Rate = 4.25%
Current Price = Maturity Value / (1 + i)^n
Current Price = $1,700 / 1.0425^5
Current Price = $1,380.60
So, worth of bond is $1,380.60
Answer 8 is 5%
Value of Trust Fund = $1,000,000
Annual Withdrawal = $50,000
Annual Interest Rate = Annual Withdrawal / Value of Trust Fund
Annual Interest Rate = $50,000 / $1,000,000
Annual Interest Rate = 5%
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