1. You make deposits of $10,000, $6,000, and $5,000 respectively at the end of years 1, 2, and 3 in an account that offers 5% interest. Draw a time line and compute how much will your savings be worth in three years. (5 points)

2. Dusty Wall will receive $8,000 one year from today and $10,000 two years from today. Then from the end of the third year through the end of the eighth year, he will receive $20,000 per year. At a discount rate of 4% what is the present value of all future benefits? Draw a timeline. (10 points)

3. Compute the market price (V_b) of the following three $1,000 par value bonds with 10-year maturity. Show steps of your calculations. (10 points)

A. 8% coupon (interest rate) paid semi-annually? Assume the yield-to-maturity of 10%.

B. 4% coupon (interest rate) paid semi-annually? Assume the yield-to-maturity of 10%.

C. 8% coupon (interest rate) paid semi-annually? Assume the yield-to-maturity of 6%.

4. Based on your answers in problem #3, (5 points)

A. What is the relationship between bond value (V_b) and yield-to-maturity?

B. What is the relationship between bond value (V_b) and coupon rate?

5. Your grandfather has offered you a choice of one of the following three alternatives: $6,000 now; $1,000 per year for 10 years; or $15,000 at the end of eight years. Assuming an interest/discount rate of 10%, which alternative should you choose? If you could earn 14%, would you still choose the same alternative? Show timelines and calculations for EACH option. (10 points)

1. You make deposits of $10,000,$6,000, and $5,000 respectively at the end of years 1,2, and 3 in an account that offers 5% interest. Draw a time line and compute how much will your savings be worth in three years. (5 points) 2. Dusty Wall will receive $8,000 one year from today and $10,000 two years from today. Then from the end of the third year through the end of the eighth year, he will receive $20,000 per year. At a discount rate of 4% what is the present value of all future benefits? Draw a timeline. ( 10 points) 3. Compute the market price (Vb) of the following three $1,000 par value bonds with 10-year maturity. Show steps of your calculations. (10 points) A. 8% coupon (interest rate) paid semi-annually? Assume the yieldto-maturity of 10%. B. 4% coupon (interest rate) paid semi-annually? Assume the yieldto-maturity of 10%. C. 8% coupon (interest rate) paid semi-annually? Assume the yieldto-maturity of 6%. 4. Based on your answers in problem \#3, (5 points) A. What is the relationship between bond value (Vb) and yield-tomaturity? B. What is the relationship between bond value (Vb) and coupon rate? 5. Your grandfather has offered you a choice of one of the following three alternatives: $6,000 now; $1,000 per year for 10 years; or $15,000 at the end of eight years. Assuming an interest/discount rate of 10%, which alternative should you choose? If you could earn 14%, would you still choose the same alternative? Show timelines and calculations for EACH option. (10 points)