1. A new business opportunity has presented itself. The business venture is expected to last for ten years. For the first four years, negative cash flows of $32,000 per year are expected at the end of each year. No net cash flow is expected at the end of year five. A positive cash flow of $35,000 is anticipated at the end of year six. A positive cash flow of $47,000 is expected at the end of years seven through ten. At the end of year ten, the business will be sold for $280,000. What is the present value of all of the future cash flows, assuming a 17.50% annual cost of capital? HINT: Use a timeline. If the business venture will cost you $179,000 to establish today, what is the net present value of the business venture? Should you pursue it?

2. What is the present value of a $1,000 par value 40 year bond with an annual coupon rate of 7% and semi-annual interest payments? Assume that the current annual market rate is 11%. Show all work. Is the bond selling at a premium or a discount?

3. Draw the SML graph, and indicate the region where you can find the most attractive investments. Also indicate the area where the least attractive investments are located. Be sure to label the axes and other parts of the graph.

4. A stock is expected to grow at a rate of 22% for the next three years. A recent dividend paid was $1.50 per share. After three years, the stock is expected to grow at a constant rate of 9% per year. If the minimum acceptable rate of return is 13%, what is the current expected price? Show all work.