# If you expect to earn 6.1% on your investments?

Learning Goal: I’m working on a management question and need support to help me learn.On October 30, 2015, Altria Group will issue a 5% coupon bond with \$1000 par value and semiannual coupon payments. The bonds will mature on October 30, 2025. Based on the prices of bonds with similar risk characteristics, you have determined that the bonds should have a yield to maturity of 5.81%. What is the maximum price you would pay for the bond at the time of issuance? (5 points)
You just turned 30 years old, and decided that it is time to start saving for retirement. Based on your anticipated income and expenses, you expect to be able to invest \$4,000 each year until you are 50 years old, and then \$5,000 each year until you retire at age 65. Assume each payment/saving is at the end of the year. (30 points)You expect to earn 6.1% on your investments. What is the expected value of your retirement account at age 65?
During retirement, you expect to spend about \$160,000 per year. You expect to live until you are 85 years old, and will continue to earn 6.1% on your remaining investments until you die. How much do you need to have saved at age 65 to fund your retirement? Is your retirement completely funded by your investments? If not, what is the difference?
You just received a large inheritance. If your retirement is not completely funded by your investments, how much of the inheritance do you need to set aside now (at age 30) to fund the remainder of your retirement needs, if you expect to earn 6.1% on your investments?
(Hint: for the time period 30-50, take N=20; for the time period 50-65, take N=15, etc.)
IBM just paid a dividend of \$1.6 per share. You expect IBM’s dividend to grow at a rate of 9% per year for the next three years, and then you expect constant dividend growth of 4% forever. Based on the risk of IBM stock, you require a return of 13%. Using the dividend discount model, what is the value of IBM stock? (15 points)
4. You can form a portfolio of two assets, A and B, whose returns have the following characteristics:Stock Expected Return Standard Deviation Correlation A10% 20% 0.5B 15% 40%If you demand an expected return of 12%, what are the portfolio weights? What is the portfolio’s standard deviation? (10 points)

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