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Question
Assume that you own a hundred $1,000 par value bonds, with a total face value of $100,000. These bonds have a 4 percent coupon, pay interest semiannually, and have 5 years remaining until they mature. New bonds with the same risk and maturity provide yields to maturity of 14 percent. You are considering selling your bonds and depositing the proceeds in a savings account which pays interest at a rate of 6 percent, annual compounding. If you do make the transaction, you will liquidate the savings account by making 5 equal withdrawals, the first coming 1 year from now. What will be the amount of each annual withdrawal?
a. $12,940
b. $15,403
c. $24,860
d. $29,425
e. $64,880
Answer
This answer is hidden. It contains 291 characters.
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