1. [3 points] Suppose with an initial investment of $1,000 you can - at a 5% annual interest rate - obtain $1,050 in one year (no compounding).

   1. How would compounding on a quarterly basis alter the future cash flow from the investment? SET UP the problem (show the equation that is used to obtain the new future cash flow when compounding is taken into account; substitute in for all values) and discuss (whether the value of the investment is higher or lower than $1050).

   2. What is EAR equal to? Calculate, showing all work.

   3. What would be the impact on the cash flow if compounding takes place more often (monthly,

      or daily)? Explain. Do not calculate, just discuss.

2. [1point]What is the PV of a cash flow received in 3 years?Assume that i=3% and CF=$4500. Calculate and show all work.

3. [2 points] Consider a fixed payment loan of $55,500 that has 15 years to maturity, with annual FP of $5250, and i=5%. a. What is the PV of this loan? SET UP the problem only.

b. What would have been the impact on FP if the borrower had to pay higher interest rates (=6%), yet

still wanted to borrow $55,500 and repay in 15 years? Discuss only. Do not calculate.

4. [3 points] Consider a 4-years to maturity Coupon bond with Face Value = $1000 and a 4% coupon rate; suppose it was just now issued.

   1. Obtain the PV (i.e. set up the equation and plug in all values).

   2. What is the yield to maturity on this bond if the initial buyer of the bond holds this bond for the whole 4 years? Given #. Is there interest rate risk associated with holding this bond? Discuss.

   3. Calculate the current yield. Show work.

5. [1 points] Consider a discount bond with a face value of $5000 that has a yield to maturity equal to 0.5% (i.e. just 12%). What is the price of this bond? Calculate it. Show all work.

please show all work for all questions , thankyou!!