1. A 5 year bond (with $1,000 face value) was issued with an unusual coupon payment schedule. The company promises to pay the following amounts as coupon interest each year:

Time 1 $45

Time 2 $55

Time 3 $65

Time 4 $75

Time 5 $85 (The company will also pay back the face value in time 5).

(a) Find the exact bond price if YTM = 6.5%. Show your work

(b ) Explain using time value of money principles why the bond in part (a) does not sell for exactly $1,000.

2. You have won a contest that pays an award of $100,000 paid over a number of years. Consider the following three choices are given three choices for receiving the award:

A. receive 50,000 in time 0 and 50,000 in time 5

B. receive $10,000 each year from time 0 through time 9

C. receive 20,000 in each year from time 0 through 4

Assuming r > 0, rank the choices with the highest first and the lowest last. Explain your rankings