1. (8 points) Investment bankers often look for stable sources of cash flow that can be bundled together in the form of bonds and sold for cash today. These bonds are called asset backed bonds because their values depend on the underlying assets. For example, British rocker David Bowie sold some of his future royalties from his music collection for $55 million to Prudential Insurance Co. In this case, the underlying asset is the legal right to the future royalties from Bowie's music. Many predict that Bowie's deal will start a trend of similar deals. 1) Suppose that Elton John decides to enter into an asset-backed bond deal. He wants to obtain $100 million today in exchange for a yearly fixed payment taken from his royalties over the next 10 years. What is the minimum amount his royalties must be to make the fixed payments if investors require a 7.5% return? Assume that the first payment is one year from today. 2) The Rolling Stones anticipate being able to generate at least $15 million in royalties each year forever. How much would investors pay for this cash flow if they require a 7.0% return? 1. (8 points) Investment bankers often look for stable sources of cash flow that can be bundled together in the form of bonds and sold for cash today. These bonds are called asset backed bonds because their values depend on the underlying assets. For example, British rocker David Bowie sold some of his future royalties from his music collection for $55 million to Prudential Insurance Co. In this case, the underlying asset is the legal right to the future royalties from Bowie's music. Many predict that Bowie's deal will start a trend of similar deals. 1) Suppose that Elton John decides to enter into an asset-backed bond deal. He wants to obtain $100 million today in exchange for a yearly fixed payment taken from his royalties over the next 10 years. What is the minimum amount his royalties must be to make the fixed payments if investors require a 7.5% return? Assume that the first payment is one year from today. 2) The Rolling Stones anticipate being able to generate at least $15 million in royalties each year forever. How much would investors pay for this cash flow if they require a 7.0% return