3. BDO Limited just hired you and has offered you two different salary arrangements.Arrangement 1: you can have $90,000 per year for the next two years orArrangement 2: you can have $65,000 per year for the next two years, along witha $45,000 signing bonus today.Cash and MarketableSecurities$100Fixed Assets $283.50Sales $1,000.0Net Income $50.00Quick Ratio 2.0XCurrent Ratio 3.0XDays Sales Outstanding 40 daysReturn On Equity 12%The bonus is paid immediately, and the salary is paid at the end of each year. Ifthe interest rate is 10 percent compounded monthly, which do you prefer?

4. You have just won the Play-to-win Lottery, which pays you $1 million today andanother 10 annual payments that increase by $400,000 per year. Therefore, inone year, you receive $1.4 million, in two years you get $1.8 million and so on. Ifthe appropriate interest rate is 9 percent, what is the present value of yourwinnings?

5. a. Explain why the yield on a bond that trades at a discount exceeds the bondscoupon rate.

b. Why are longer-term bonds more sensitive to changes in interest rates thanshorter term bonds?

c. Does the bonds YTM determine its price or does the price determine theYTM?

6. Alibaba Company Limited sold an issue of bonds with a 10-year maturity, a$1,000 par value, a 10 percent coupon rate, and semiannual interest payments.

a. Two years after the bonds were issued, the going rate of interest on bondssuch as these fell to 6 percent. At what price would the bonds sell?

b. Suppose that 2 years after the initial offering, the going interest rate hadrisen to 12 percent. At what price would the bonds sell?

c. Suppose the condition in part a existed. Further assume that the interestrate remained at 6 percent for the next 8 years. What would happen tothe price of the bonds over time?

7. Massy United Ltd. has been experiencing high levels of growth over the past 5years and management has decided to retain most of its earnings to finance thatintense growth level. IN light of this, the company has decided to reduce itsannual dividend by 30 percent annually for the next 2 years. After that, it willmaintain a constant dividend of $2.50 a share. Last year, the company paid$3.60 as the annual dividend per share. If the required rate of return is 14.5percent what is the market value of its stock? (4 POINTS

)8. The common shares of Almond Beach Ltd., have a beta of 0.75, offer an expectedreturn of 9%, and have an historical standard deviation of return of 17%,alternatively, the common shares of Palm Beach Inc. have a beta of 1.25, offer anexpected return of 10%, and have an historical standard deviation of return of 13%.Both firms have a marginal tax rate of 37%. The risk-free rate of return is 3% andthe expected rate of return on the market portfolio is 9%.

a. Would a well-diversified investor prefer to invest in the shares of AlmondBeach or the shares of Palm Beach? Explain why and show all calculations.b. Would an investor who can invest in the shares of only one firm prefer toinvest in the shares of Almond Beach or the shares of Palm Beach? Explainwhy.