1. Quantitative Problem: An analyst evaluating securities has obtained the following information. The real rate of interest is 2.8% and is expected to remain constant for the next 5 years. Inflation is expected to be 2.2% next year, 3.2% the following year, 4.2% the third year, and 5.2% every year thereafter. The maturity risk premium is estimated to be 0.1 (t 1)%, where t = number of years to maturity. The liquidity premium on relevant 5-year securities is 0.5% and the default risk premium on relevant 5-year securities is 1%. a. What is the yield on a 1-year T-bill? Round your answer to one decimal place.

%

b. What is the yield on a 5-year T-bond? Round your answer to one decimal place.

%

c. What is the yield on a 5-year corporate bond? Round your answer to one decimal place.

%

2. Quantitative Problem: Bank 1 lends funds at a nominal rate of 9% with payments to be made semiannually. Bank 2 requires payments to be made quarterly. If Bank 2 would like to charge the same effective annual rate as Bank 1, what nominal interest rate will they charge their customers? Do not round intermediate calculations. Round your answer to three decimal places.

3. Quantitative Problem: You need $18,000 to purchase a used car. Your wealthy uncle is willing to lend you the money as an amortized loan. He would like you to make annual payments for 4 years, with the first payment to be made one year from today. He requires a 7% annual return.

1. What will be your annual loan payments? Do not round intermediate calculations. Round your answer to the nearest cent.

   $

2. How much of your first payment will be applied to interest and to principal repayment? Do not round intermediate calculations. Round your answers to the nearest cent.

   Interest: $

   Principal repayment: $