1. The intrinsic value of an asset (how much an asset should be worth) is defined as:

a. the total discounted value of its expected future profits.

b. the sum of its expected cash flows discounted at the required rate of return.

c. the value recorded on the issuing corporation's balance sheet.

d. the amount investors are willing to pay for it on the open market.

2. A bank purchases a three against nine $1,000,000 forward rate agreement to hedge an existing position. The agreement rate with the seller is 4.0%. Three months from today, the settlement rate is observed to be 3.8%. Who pays whom, when, and how much? Assume a 360 day year and 30 days per month.

a. The bank pays $981.35 at the end of 3 months

b. The bank pays $981.35 at the end of 9 months

c. The counterparty pays $981.35 at the end of 3 months

d. The counterparty pays $981.35 at the end of 9 months