Answer:
b) The bond Sandy purchased has a face value of $2500 and a coupon rate of 7%. The coupon rate is the interest rate paid on the bond, which is typically paid semiannually. To find how much interest Sandy will receive semiannually, we can use the formula:
Interest = Face value x Coupon rate / 2
Interest = $2500 x 7% / 2 = $87.50
So Sandy will receive $87.50 in interest semiannually from the bond.
c) The fund Sandy invested in is expected to grow by 3.5% per year. To find how long it will take for the fund to be worth $10,000, we can use the formula:
Future value = Present value x (1 + Interest rate)^Years
We can solve for Years by dividing both sides of the equation by the present value and taking the natural logarithm of both sides:
Years = ln(Future value/Present value) / ln(1 + Interest rate)
Years = ln(10000/5000) / ln(1.035)
Years = 7.19
Therefore, the fund will take about 7.19 years to be worth $10,000.
d) Sandy's gross annual income is $51,350. She is paid biweekly, and 5% of her paycheck is deducted for her 403(b). Her employer matches her deduction, up to 4%. To find how much is deposited into Sandy's 403(b) each payday, we can use the following formula:
Contribution = (Gross pay x Contribution rate) + (Employer match x Employee contribution)
Gross pay = $51,350/26 (for bi-weekly paycheck) = $1977.50
Contribution = ($1977.50 x 5%) + ($1977.50 x 5% x 4%) = $98.87
So, $98.87 is deposited into Sandy's 403(b) each payday.