1. A corporate bond has a 10% coupon rate and a $1,000 face value. Interest is paid semi-annually and the bond has 20 years to maturity. If investors require a 12% yield, what is the bond's value?
2. The annual rate of inflation is a constant 4%. The annual real rate of interest is a constant 2%. Nominal cash flows at the end of the next four years are 800, 1,200, 750 and 1,500 respectively. Calculate the corresponding real cash flows and the present value of their sum using the real rate of interest.