5. Give four examples of ACH transactions you might make. (LO2)

6. For each pair of instruments below, use the criteria for valuing a financial instrument to choose the one with the highest value.(LO1)

1. A U.S. Treasury bill that pays $1,000 in six months or a U.S. Treasury bill that pays $1,000 in three months.
2. A U.S. government Treasury bill that pays $1,000 in three months or commercial paper issued by a private corporation that pays $1,000 in three months.
3. An insurance policy that pays out in the event of serious illness or one that pays out when you are healthy, assuming you are equally likely to be ill or healthy.

Explain each of your choices briefly.

7. Joe and Mike purchase identical houses for $200,000. Joe makes a down payment of $40,000 while Mike only puts down $10,000; for each individual, the down payment is the total of his net worth. Assuming everything else equal, who is more highly leveraged? If house prices in the neighborhood immediately fall by 10 percent (before any mortgage payments are made), what would happen to Joes and Mikes net worth? (LO2)