1.You deposit $2,000, $3,000, and $4,000 respectively at the end of years 1, 2, and 3 from today in a mutual fund providing 10% return. Draw a timeline and compute the value of your savings in 3 years.(2)

2.Aunt Zelda's son starts college in 5 years for which she will need $15,000 payable at the end of each of the 4 years.Suppose she can buy an annuity in 5 yrs. that will enable her to make the four $15,000 annual payments. Draw a timeline for all cash flows. What will be the cost of the annuity 5 years from today? What is the most she should be willing to pay for it if purchased today? Assume an interest (discount) rate of 6% during these 9 years.(4 + 2)

1. (a)Compute the market price (V_b) of the following bonds:(3)

i.$1,000 par value, 10-yr maturity, and 8% coupon rate that is paid semi-annually?Assume the yield to maturity of 12%.

ii.$1,000 par value, 10-yr maturity, and 6% coupon rate that is paid semi-annually?Assume the yield to maturity of 12%.

iii.$1,000 par value, 10-yr maturity, and 8% coupon rate that is paid semi-annually?Assume the yield to maturity of 6%.

(b) Based on your answers comment on the relationship (what happens to one variable when the other goes up/down) of (a) price with yield to maturity and (b) price with coupon rate.(4)