4.You are considering buying a painting by a relatively unknown avant-garde artistnamed Demento Jones. Knowing something about the market for art, you areconvinced that in exactly two years, Demento will be discovered, and you will be ableto sell the painting for $50,000.

If you dont buy the picture, youll simply put your money in a savings account fortwo years at 3% interest, compounded annually.

What is the most you should pay for the painting today? Round your answer to thenearest dollar. Show your calculations and formula.

5.Find PB, the price of the following bonds, where

F = Face value

c = Coupon rate

T = Years to maturity

i = Prevailing interest rate on comparable bonds

In each case, be sure to write out the equation you are using with the numbers given,and show your work.

5a.

F = $5,000

c = 3.5%

T = 2

i = 5%

5b.

F = $7,500

c = 0%

T = 8

i = 4%

5c.

F = $4,000

c = 7%

T

i = 4.5%