17. Youve just joined the investment banking firm of Dewey. Theyve offered you two different salary arrangements. The first one is that you can have $95,000 per year for the next two years, however, the second one is that you can have $70,000 per year for the next two years, along with a $45,000 signing bonus today. The bonus is paid immediately, and the salary is paid at the end of each year. If the interest rate is 10 percent, which do you prefer? *

A) The first option

B) The second option

C) Indifferent

D) Neither

None of the above

18. A companys 5 years bond are yielding 7.75% per year. Treasury bond with the same maturity are yielding 5.2% per year, and the real risk free rate (r*) is 2.3%. The average inflation premium is 2.5%; and the maturity risk premium is estimated to be 0.1 * (t - 1) %, where t = numbers of years to maturity. The liquidity premium is 1%. The default risk premium on the corporate bond is: *

A) 1.55%

B) 2.55%

C) 3.55%

D) 4.55%

None of the above

19. Glasgow Corporation's 5-year bonds yield 6.2% and 5-year T-bonds yield 4.4%. The real risk-free rate is r* = 2.5%, the inflation premium for 5-year bonds is IP = 1.50%, the default risk premium for Glasgow's bonds is DRP = 1.30% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP = (t 1) 0.1%, where t = number of years to maturity. What is the liquidity premium (LP) on Glasgow's bonds? *

A) 0.36%

B) 0.41%

C) 0.45%

D) 0.50%

None of the above

20. A homeowner in a sunny climate has the opportunity to install a solar water heater in his home for a cost of $2900. After installation the solar water heater will produce a small amount of hot water every day, forever, and will require no maintenance. How much must the homeowner save on water heating costs every year if this is to be a sound investment? (The interest rate is 5% per year.) *

A) $145

B) $160

C) $175

D) $190

None of the above