The HW problems begin on the next page.

Part $1.$ Present value and future value

The market interest rate is $5$ percent $($or $0\mathrm{.}05$ in decimal form$)$ for borrowing and lending.

Q$1.$ You have $$10,000$ now. The market interest rate is $5$ percent. If you put it in an account that earns the market interest rate, how much will it be worth in

a$.$ One year?

b$.$ Two years?

c$.$ Three years?

d$.$ Four years?

Q$2.$ The market interest rate is $5$ percent. There is a bond that will mature in $4$ years, at which time it will pay $$12,155.$ What is the present value of this bond? Use the PV formula and show your work.

Q$3.$ Looking at your answers to the previous problems, tell me why an investor should be indifferent between having $$10,000$ now or having the bond described in problem $2?$

Part $2.$ Determining the price of a bond.

The market interest rate is $4$ percent.

You are thinking about purchasing a zero$-$coupon bond with a face value of $$5,000$ that matures in $t=3$ years.

Q$1.$ First, determine the present value of this bond. Use the formula and show your work.