Marie Snell Recently Inherited Some Bonds (Face Value $100,000)from Her

question 112

Multiple Choice

Marie Snell recently inherited some bonds (face value $100,000) from her father,and soon thereafter she became engaged to Sam Spade,a University of Florida marketing graduate.Sam wants Marie to cash in the bonds so the two of them can use the money to "live like royalty" for two years in Monte Carlo.The 2 percent annual coupon bonds mature on January 1,2030,and it is now January 1,2010.Interest on these bonds is paid annually on December 31 of each year,and new annual coupon bonds with similar risk and maturity are currently yielding 12 percent.If Marie sells her bonds now and puts the proceeds into an account which pays 10 percent compounded annually,what would be the largest equal annual amounts she could withdraw for two years,beginning today (i.e. ,two payments,the first payment today and the second payment one year from today) ?

• A) $13,255
• B) $29,708
• C) $12,654
• D) $25,305
• E) $14,580

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Definitions:

50th Percentile

Also known as the median, it is the value below which 50% of the observations in a group of data fall.

N - 1

A formula used to calculate the sample variance or sample standard deviation, representing the sample size minus one.

Variance

A measure of the dispersion of a set of data points around their mean value, indicating how spread out the data are.

Measure of Variability

Statistical indices that describe the spread or dispersion within a set of numerical data, including range, variance, and standard deviation.