13. A bond problem. A bond is a financial device that is very interesting, in that it has two types of cash flows--the interest payments and the face value at maturity. For example, suppose Johnson Company issues $100,000 of 3-year bonds, with 6% interest paid annually. From the investor's standpoint, the cash flows for this bond would be sketched as follows:

Time Period 0	Time Period 1	Time Period 2	Time Period 3
Pay How Much?	Receive $6,000	Receive $6,000	Receive $6,000
			Receive $100,000

Question: is this an annuity, a lump sum, or both? Answer: both--the interest is $6,000 per year, an annuity. The receipt of face value at maturity is a lump sum of $100,000.

Question: How much should Gina pay to get this bond, assuming Gina demands a rate of return (yield) of 8% on her investment? Hint: discount the annuity at 8% using the annuity table; then discount the lump sum at 8% using the PV of $1 table--then add the two amounts together. Note that it is possible to earn an 8% return on a 6% bond if you pay sufficiently less than face value to acquire the investment.