ECO82001 €“ Economics And Quantitative Analysis Regression Analysis

Question 1 Real vs nominal annuities: a) Even though it is too early to think about retirement, you have already decided that you want to accumulate enough by then to provide yourself with $30,000 a year for 15 years after you retire. If the interest rate is 10% how much must you accumulate? (You are asked to calculate the present value of $30,000 for 15 years) b) How much must you save each year until retirement in order to finance your retirement consumption? Important: your retirement is in 30 years, not 15. c) Now you remember that the annual inflation rate is 4%. You really want to consume $30,000 a year in REAL dollars during retirement and wish to save an equal REAL amount each year until then. What is the real amount of savings that you need to accumulate by the time you retire?
Question 2 Suppose that General Motors Acceptance Corporation issued a bond with ten years until maturity, a face value of $1,000 and a coupon rate of 7% (annual payments). The yield to maturity on this bond when it was issued was 6%. a) What was the price of this bond when it was issued?
b) Assuming the yield to maturity remains constant, what is the price of the bond immediately before it makes its first coupon payment?
c) Assuming the yield to maturity remains constant what is the price of the bond immediately after it makes its first coupon payment?