2. A financial instrument has a face value of $3000 and is presently trading for $2800. If the instrument expires in 18 months and has no coupons, find the annual yield to investors using the money-market yield convention.

3. Consider a lender that lends $10,000 to a new GM dealership and at the same time shorts GM stocks.

Why would a lender do that?

If the loan pays 10% annually, and the lender shorts 500 stocks, each priced at $60, how high can the stock prices go in two years before the lender losses money?

4. An investor receives $1,200 in two years in return for an investment of $1,000 now. Calculate the percentage return per annum with a) annual compounding, b) semiannual compounding, c) continuous compounding, and d) the return as defined by the money-market yield.