1. You want to quit your job and go back to school for a law degree 4...

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1. You want to quit your job and go back to school for a law degree 4 years from now, and you plan to save $3,400 per year, beginning immediately. You will make 4 deposits in an account that pays 5.7% interest. Under these assumptions, how much will you have 4 years from today?

2. What's the present value of a 4-year ordinary annuity of $2,250 per year plus an additional $2,700 at the end of Year 4 if the interest rate is 5%?

3. At a rate of 7.5%, what is the future value of the following cash flow stream?

Years:	0	1	2	3	4
CFs:	$0	$75	$225	$0	$300

4. Suppose your credit card issuer states that it charges a 20.25% nominal annual rate, but you must make monthly payments, which amounts to monthly compounding. What is the effective annual rate?

5. you borrowed $90,000 at a rate of 8.5% and must repay it in 5 equal installments at the end of each of the next 5 years. How much would you still owe at the end of the first year, after you have made the first payment?

6. Suppose 1-year T-bills currently yield 7.00% and the future inflation rate is expected to be constant at 3.60% per year. What is the real risk-free rate of return, r*? Disregard any cross-product terms, i.e., if averaging is required, use the arithmetic average.

7. Suppose the real risk-free rate is 3.50% and the future rate of inflation is expected to be constant at 3.20%. What rate of return would you expect on a 1-year Treasury security, assuming the pure expectations theory is valid? Disregard cross-product terms, i.e., if averaging is required, use the arithmetic average.

8. Suppose the real risk-free rate is 4.20%, the average expected future inflation rate is 4.70%, and a maturity risk premium of 0.10% per year to maturity applies, i.e., MRP = 0.10%(t), where t is the years to maturity, hence the pure expectations theory is NOT valid. What rate of return would you expect on a 4-year Treasury security? Disregard cross-product terms, i.e., if averaging is required, use the arithmetic average.

9. Kern Corporation's 5-year bonds yield is 6.90%.The real risk-free rate is r* = 2.5%, the default risk premium for Kern's bonds is DRP = 1.90%, the liquidity premium on Kern's bonds is LP = 1.3%, and the maturity risk premium is 0.4%. What is the inflation premium (IP)?

10. Ryngaert Inc. recently issued noncallable bonds that mature in 15 years. They have a par value of $1,000 and an annual coupon of 5.7%. If the current market interest rate is 6.9%, at what price should the bonds sell?

11. Dyl Inc.'s bonds currently sell for $1,420 and have a par value of $1,000. They pay a $65 annual coupon and have a 15-year maturity, but they can be called in 5 years at $1,100. What is their yield to maturity (YTM)?

12. Taussig Corp.'s bonds currently sell for $990. They have a 6.35% annual coupon rate and a 20-year maturity, but they can be called in 5 years at $1,067.50. Assume that no costs other than the call premium would be incurred to call and refund the bonds, and also assume that the yield curve is horizontal, with rates expected to remain at current levels on into the future. Under these conditions, what rate of return should an investor expect to earn if he or she purchases these bonds?

13. A 25-year, $1,000 par value bond has an 8.5% annual payment coupon. The bond currently sells for $850. If the yield to maturity remains at its current rate, what will the price be 5 years from now?

14. Moerdyk Corporation's bonds have a 15-year maturity, a 7.25% semiannual coupon, and a par value of $1,000. The going interest rate (rd) is 5.80%, based on semiannual compounding. What is the bond's price?

15. Keenan Industries has a bond outstanding with 15 years to maturity, an 8.25% nominal coupon, semiannual payments, and a $1,000 par value. The bond has a 6.50% nominal yield to maturity, but it can be called in 6 years at a price of $1,160. What is the bond's nominal yield to call?