1.A bond has a face value of $1000.It has a coupon rate of 8%.

a.The bond has just been issued and has a 30-year maturity. If the market rate of interest is 7%, graph using Excel the price of the bond starting at 30 years to maturity and then aging until it has 1 year to maturity.Explain the pattern you see.

b.Suppose there is a second bond with only 5 years to maturity, but also has a face value of $1000 and a coupon rate of 8%.Holding years to maturity constant at 30 and 5 respectively, use Excel to graph the impact of changes in the market rate of interest using the range of 1% to 15%.Explain the pattern you see.

2.The current price of a share of stock is $30.In year 1 the price will either be $26 or $35 per share.The risk free rate is 5%.Using daily compounding, find the price of a call option using the binomial model if the option has a strike price of $31 and it expires in 1 year.What if it expires in 2 years?Explain the difference in your call prices.

3.Using the SEC website, find the litigation complaint against Qwest Communications International and describe the charges made by the government.Give three examples of how the financial statements would have been different if the accounting fraud had not occurred.