By the end of this year you would be 35 years old and you want to plan for your retirement. You wish to retire at the age of 65 and you expect to live 20 years after retirement. Upon retirement you wish to have an annual sum of $50,000 to supplement your social security benefits. Therefore, you opened now your retirement account with 7% annual interest rate. At retirement you liquidate your account and use the funds to buy an investment grade bond which makes $50,000 annual coupon payments based on a 6 % coupon rate, throughout your retirement years.
| 1 | face value of the bond that you will be investing | |||||
| 50000/.06 | ||||||
| 833333.3 | (round off) | |||||
| 50000 is the annual coupon payments | ||||||
| 6 is the interest rate | ||||||
| 2 | calculate the monthly payment | |||||
| future value=a/r*(1+R)^n-1) | ||||||
| rate=7% | ||||||
| rate per month | 0.583333 | |||||
| 833333=annuity/.58333*(1+.58333)^360-1) | 7.010009653338E+71 | |||||
| annuity=(833333*.58333)/7.01 | 693.4496 | monthly annuity amount | ||||
| 3 | the month which inheritors will receive is the face value of the bond is 833333 | |||||
| assuming the interest rate and coupon rate of the bond is same | ||||||
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