1. Youre now holding a $10,000 bond that matures in 2030. The bond comes with 12% coupons and just cost you $12,700. a. Confirm that it has a yield-to-maturity of 7%. b. What on earth possessed you to pay $12,700 for a $10,000 bond?

2. A small commercial bakery in Montreal that specializes in cakes and pastries for special occasions (e.g., weddings) has an aging oven. The owner is thinking ahead, thinking that hed better start setting aside money to buy a new one, probably sometime in the next five to ten years. Hes got his eye on the Doyon JA6, a six-pan electric oven with steam injection. Theyre listing at about $24,000 (all in) now, but the owner suspects theyll be around $26,750 when hes finally ready to purchase. He figures he can afford to put about $3,000 per year into an account earning 8%. How many years, then, will it be until he has the $26,750 he thinks hell need?

3. A $10,000 bond carries a 5% coupon. Its 14 years from maturity. If market rates are around 7%, what should it be priced at? (Before you do the calculation, can you guess whether it will sell at a premium, at par, or at a discount?)

4. Your sister is pregnantits going to be a boy! (Please tell her Congratulations! for me.) Upon hearing the good news, your grandparents sold their old cottage for $70,000, and will use the money to set up a trust for the newborn, who is to be named after me (First name: Doctor; Middle name: Frooman. Seriously, guys, Im really, truly flattered. Do give your sister my very best.) The trust will legally be set up on the day Doc is born. Your grandparents want the trust to pay annually on Docs first 18 birthdays, to help make sure Docs family always has a little extra on hand to provide amply for him. If the trust is invested in an asset that is expected to earn 9% per year, how much will it pay your sister annually? Challenge questions are not marked.

5. You purchase a 6% coupon bond at a premium, paying 10% over its $1000 face value. It has nine years left on it until maturity. a. What is its current yield? b. If one year from now you sell it for $1130, what will its one-year rate-of-return have been? c. Challenge Question: Approximately what must the market rate have been when you purchased the bond?

6. You borrow $1000 from the local loan shark, Benny. He tells you to pay him back $1350 in two years time or hell break your face. What interest rate is Benny charging you?

7. Youve decided you want to be a commercial pilot. On-the-ground and in-the-air training will run around $17,000. Required additional flight time (one needs 200 solo hours to qualify for the exam) is another $13,500. Oh, and did I mention the incidental fees, which incidentally, run another $2,000? So youre looking at a total of around $32,500, which by the way, you dont have. Looks like youre going to be needing a loan. You opt for a four-year loan, which youll pay back in annual instalments. The interest rate will be15% (ouch!)and this was after Benny put in a good word for you at the bank. a. First, tell me what your annual payments will be. b. Second, set up and fill in an amortization schedule with these six columns: 1) Year 2) Principle Balance (at beginning of year) 3) Annual Mortgage Payment 4) Interest Paid 5) Amortization Payment (which is applied to the outstanding principle) 6) Principle Balance (at end of year) (Try to do this without looking at your notes!)

8. The dividend (annualized) for Alimentation Couche-Tard for 2023 will be $0.58. a. If the current ROR for the market portfolio is 8%, you would be willing to pay how much to purchase a share of Couche-Tard, assuming no dividend growth? b. The stock was recently selling for $52.50/share. The stock is implicitly providing what return (assuming a no-growth dividend)? c. Given that the growth rate of the stocks dividends is actually 3.5%, what would you expect next years dividend be? d. Given this new information about the stocks historic growth rate, what would you now be willing to pay for the stock? e. Challenge Question: If Couche-Tard should be priced at around $13, why is it selling for around $52?

9. Your mother just turned 52. She wants to purchase a deferred income annuity (DIA) policy from a life insurance company, in order to supplement her retirement income. She wants one that will pay her $75,000 per year for fifteen years, starting on her 66th birthday. If a life insurer is assuming market rates will average around 10% over the next 30 years or so, what would you expect such a DIA to sell for today?

10. You just bought some stock selling at $28.75/share, and it is believed that next years dividend will be 1.60/share. a) What is the dividend growth rate, assuming the market portfolio is earning around 8% per annum now? b) If you sold the stock for $30.25/share immediately after collecting next years dividend, what would be your one-year return on the stock?

11. Consider again the DIA in Q9. What would the final payment of $75,000 be worth in todays dollars, assuming the insurer is correct about r = .10? (Note that our tables are missing some rows, so if necessary use a nearby row for your calculation.)