Question: 1. (Modified from Question #7, Chapter 2) A pension fund manager knows that the following liabilities must be satisfied Year from Now Liability (in million)

1. (Modified from Question #7, Chapter 2) A pension fund manager knows that the following liabilities must be satisfied Year from Now Liability (in million) 1 $2.0 2 3.0 3 5.4 4 5.8 Suppose that the pension fund manager wants to invest a sum of money that will satisfy this liability stream. Assuming that any amount that can be invested today can earn an annual interest rate of 7.6%, how much must be invested today to satisfy this liability stream? 2. (Modified from Question #11, Chapter 2) Suppose that you are reviewing a price sheet for bonds and see the following prices (per $100 par) reported. You observe what seem to be several errors. Without calculating the price of each bond, indicate which bonds seem to be reported incorrectly and explain why. Bond Price Coupon Rate (%) Required Yield (%) U 90 6 9 V 96 9 8 W 110 8 6 X 105 0 5 Y 107 7 9 Z 100 6 6

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