1. You own 30-year Treasury Bonds that you bought exactly 6 years ago. At the time (you bought the T-Bonds when they were issued), the 30-year T-Bond yield was 3.75% APR (compounded semi-annually). That yield was also the coupon rate used to compute the semi-annual coupon payments (the T-Bonds were issued exactly at par). The T-Bonds have a total face value of $50,000.
You just received an interest payment, and the bonds will mature in exactly 24 years. Today's yield for such a long-maturity T-Bond is 1.40% (APR, compounded semi-annually).
a. What is the current market value of your T-Bonds?
b. By what percentage has the value of your T-Bonds increased or decreased since you bought them?

2. Your employer is planning to create a new product line, including completely new operations. The up-front investment will be partly financed with a five-year term loan from a bank, in the amount of $2,500,000.00. This term loan will require fixed payments (either monthly or semi-annual [every six months]) until maturity. The loan officer believes that an EAR of 4.65% is appropriate.
a. What would the firm's semi-annual payments be?
b. What would the firm's monthly payments be?
c. What total payments would the firm make over one year with either semi-annual or monthly payments? (Just add up the payments, ignore any time-value-of-money issues.)
d. Compare your two answers to Question 2.c. Is one total larger than the other? Explain! (No need to calculate anything, explain in words.)

3. The new operations described in Question 2 are expected to generate net cash flows as follows:
Year      CF (in $m)
1            0.2
2           0.4
3          0.7
4          0.95
5          1

later years: g = 3.75%
The appropriate discount rate for this cash flow stream is 9.9%. Assume that the up-front investment was made an hour ago, and production has started. What is the current value of the new operations?

4. A royalty contract promises a $500,000 sign-up bonus; ten annual royalty payments, starting with $250,000, next year then growing at a rate of 6.5%; and a final bonus (in year ten, together with the last regular payment) of $800,000. If the appropriate discount rate is 10.8%, what is the value of all the payments if this royalty contract is signed today? Use the annuity formula in some of your calculations!