2. (10 points) You are considering a $25,000, 3-year investment and feel that a 12 percent rate of return is reasonable given the nature of the risks involved. You feel that you will receive at least $100 in the first year, $36,000 in the second year, and potentially could see a cash outflow of $5,000 in the third year. a. Does this investment make sense, and if so, why? b. What problem you can expect in applying the IRR rule to this decision? Explain your answer in a few sentences,

3. (10 points) Saint John Corporation has bonds on the market with 14.5 years remaining to maturity, an YTM of 6.8%, and a current price of $1,136.50. The face value is $1000.00. The bonds make semi-annual payments. a. What must be the coupon rate on these bonds? b. Use your answer at (a) to explain why this bond is a premium bond. c. If you buy the bond today and hold it till maturity, how much capital gains income and how much dividend income will you earn?