3. Nemo is considering buying a cell phone. He can either pay $600 now or make 12 equal monthly payments of $50. Which option would you suggest him? Why? 4. Describe the condition for stock market efficiency. Can an investor "beat the market" if the market is efficient? Problem solving: Points: 4x3 = 12 1. Bilbo wants to have a college fund of $120000 for Frodo after 15 years. How much does he need to invest today if his investment offers 4% return? 2. Legacy Inc. recently issued bonds that mature in 10 years. They have a par value of $1,000 and annual coupon of 6%. The current market interest rate is 8.5%. If the bonds pay interest semiannually, what will be the price of the bonds? Bonus Question: Points: 2 Hobbiton Inc's perpetual preferred stock currently sells for $92.50 per share, and it pays an $8.0 annual preferred dividend. What is the firm's cost of preferred stock? 1. Is it possible to build a risk-free portfolio using risky assets? If yes, how? If no, why not? 2. My grandfather is giving me an option to choose between two discount bonds. Both have the same coupon rate and required rate of return. However, one pays coupon annually and the other pays coupon semiannually. Which one would you suggest me to choose? Why? 1. Is it possible to build a risk-free portfolio using risky assets? If yes, how? If no, why not? 2. My grandfather is giving me an option to choose between two discount bonds. Both have the same coupon rate and required rate of return. However, one pays coupon annually and the other pays coupon semiannually. Which one would you suggest me to choose? Why? Problem solving: Points: 4 x3 = 12 1. Bilbo wants to have a college fund of $120000 for Frodo after 15 years. How much does he need to invest today if his investment offers 4% return? 2. Legacy Inc. recently issued bonds that mature in 10 years. They have a par value of $1,000 and annual coupon of 6%. The current market interest rate is 8.5%. If the bonds pay interest semiannually, what will be the price of the bonds