1. You have funds that you want to invest in bonds, and you just noticed in the financial pages of the local newspaper that you can buy a $1,000 par value bond for $800. The coupon rate is 10% (with annual payments), and there are 10 years before the bond will mature and pay off its $1,000 par value. If your required return rate on bonds with the same risk is 11%, will you buy the bond? If your required return rate on bonds with the same risk is 15%, will you buy the bond?

2. Assume that two firms are both following generally accepted accounting principles. Both firms commenced operations two years ago with $1 million of identical fixed assets, and neither firm sold any of those assets or purchased any new fixed assets. In what kind of situation that two firms would possess different present value as both firms financial statements are presented to investors?