8. You buy a 30 year zero coupon bond which will pay you in 30 years at an annual yield of compounded once per year. A few minutes later the annual yield rises to compounded once per year. What is the percent change in the value of the bond?

(Hint: recall the formula for percent change. The answer should be negative.)

10. You are offered an annuity that will pay you once per year, at the end of the year, for years. The first payment will arrive one year from now. The last payment will arrive twenty five years from now. Suppose your annual discount rate is , how much are you willing to pay for this annuity?(hint: this is the same as the present value of an annuity.)

11. An investment gives you a 18.35% nominal return over 1 year. There was 2.5% inflation over that year. What was your exact real return? (Dont use the Fisher Equation.)

12. An investment gives you an 8.35% nominal return over 1 year. There was 1.5% inflation over that year. According to the Fisher Equation what was your real return?

13. You would like to develop an office building. Your analysts forecast that it will cost you immediately (time 0), and it will cost you in one year (time 1). They forecast you can sell the building for in two years (time 2). If your discount rate is , what is the net present value of this investment?

14. You would like to develop an office building. Your analysts forecast that it will cost you immediately (time 0), and it will cost you in one year (time 1). They forecast you can sell the building for in two years (time 2). If your discount rate is , what is the internal rate of return for this investment?

15. You would like to develop an office building. Your analysts forecast that it will cost you immediately (time 0), and it will cost you in one year (time 1). They forecast you can sell the building for in two years (time 2). If your discount rate is should you invest in this building? Write 0 for no, and write 1 for yes.