FINC 340: INVESTMENTS UNIT #4 WEEKLY WRITTEN ASSIGNMENT _03 DIRECTIONS: Here is the Unit #4 Weekly Quiz Answer Sheet that you should submit to your Unit #4 Homework Assignment Folder

FINC 340: INVESTMENTS

UNIT #4 WEEKLY WRITTEN ASSIGNMENT _03

DIRECTIONS: Here is the Unit #4 Weekly Quiz Answer Sheet that you should submit to your
Unit #4 Homework Assignment Folder.
Please submit your Unit #4 Quiz Answer Sheet in MS Word format with the following file name:
LastNameFirstInitial_Unit 04_QuizAnswerSheet.docx. For example, if you name is John Smith,
the file name of your Answer Sheet should be SmithJ_Unit04_QuizAnswerSheet.docx.
If you have any questions or comments, please do not hesitate to contact me.

NAME: _____________________________________
Carol and Al Richards, both 67 years old , have only one goal: retirement. Their financial adviser
has concluded that the $1,400,000 they have in their single rollover traditional individual
retirement account (IRA) that was a rollover from Carol’s pension plan is adequate to assure
their retirement if it is invested prudently. They will receive pretax $25,000 per year from Social
Security and desire about another pretax $70,000 per year (in real dollars) from their
investments. They both expect to live until they are 95 years old. At this point the primary
concern is risk. The normal risks that are of concern are normal investment risk, inflation risk,
and low-probability, high probability events that could substantially affect the success of their
retirement portfolio.
1. You have decided that a “check-a-month” bond ladder is the best approach for the
Richards. You have designed a bond ladder that will pay more in April (to cover taxes)
and December (for the holidays). What is the average amount that the Richards will
receive from their bond ladder each month? On average what is the total amount the
Richards will receive each month. Does this meet their retirement goal?
Bonds
Maturing In

Market Price Face Value
Price*

Coupon
Rate

Interest
Paid In

Interest Paid
Each Perod
1 year $135,000 $150,000 4.50% Jan/July $3,375
2 years $135,000 $150,000 4.75% Feb/Aug $3,562.50
3 years $135,000 $150,000 5.00% Mar/Sept $3,750.00
4 years $418,500 $450,000 5.25% Apr/Oct $11,812.50
5 years $135,000 $150,000 5.375% May/Nov $4,031.25
6 years $291,000 $300,000 5.50% June/Dec $8,250.00
*All bonds are bi-annual and in denominations of $50,000.
2. Why didn’t you includ callable bonds in the bond ladder?
3. Evaluate the current yield and yield to maturity on the bonds listed in the bond ladder.
(Show your mathematical calculations or how you used your financial calculator.)