1.Andrew has the following cash flows.All market interest rates are 12%.

Year

0

1

2

3

4

Cash Flow

$160

$170

$180

$230

What price would you pay for these cash flows? What total wealth do you expect after 2.5 years if you sell the rights to the remaining cash flows? Assume interest rate remain constant.

Immediately after buying these cash flows, all market interest rates drop to 11%. What is theimpact on your wealth after 2.5 years?

2.Compare the structure and independence of the Federal Reserves System and European System of the Central Bank.

3.Inflation targeting has several advantages and disadvantages, discuss.