Assume the total cost of a university education will be $300,000 when your child enters university in 18 years. You currently have $65,000 to invest. What annual rate of interest must you earn on your investment to cover the cost of your child's university education? (10 marks)

Normandin Inc. has an unfunded pension liability of $575 million that must be paid within 20 years. To assess the value of the firm's stock, financial analysts want to discount this liability back to the present. If the relevant discount rate is 6.8%, what is the present value of this liability? (10 marks)

You are scheduled to receive $15,000 in 2 years. When you receive it, you will invest it for 6 more years at 7.1% per year. How much will you have in 8 years? (10 marks)

You are planning to make monthly deposits of $400 into a retirement account that pays 10% interest compounded monthly. If your first deposit will be made 1 month from now, how large will your retirement account be in 30 years? (10 marks)

You have just purchased a new warehouse. To finance the purchase, you have arranged for a 30-year mortgage loan for 80% of the $3,400,000 purchase price. The monthly payment on this loan will be $17,500. What is the monthly compounded APR on this loan? What is the EAR? (10 marks)

At the time of the last referendum, Quebec provincial bonds carried a higher yield than comparable Ontario bonds because of investors' uncertainty about the political future of Quebec. Suppose you were an investment manager who thought the market was overplaying these fears. In particular, suppose you thought that yields on Quebec bonds would fall by 50 basis points. Which bonds would you buy or sell? Explain your reasoning. (10 marks)

A company is contemplating a long-term bond issue. It is debating whether or not to include a call provision. What are the benefits to the company from including a call provision? What are the costs? How do these answers change for a put provision? (10 marks)

One year ago, Langford Co. issued 14-year bonds with a face value of $1,000 and a coupon rate of 6.9%. The bonds make semi-annual payments. If the yield to maturity (YTM) on these bonds is 5.2%, what is the current bond price? (10 marks)

Two years ago, Braemar Corp. issued 12-year bonds with a face value of $1,000 and a coupon rate of 7.1%. The bonds make semi-annual payments. If these bonds currently sell for 105% of par value, what is the YTM? (10 marks)

What is the difference between the term structure of interest rates and the yield curve? Is the yield to maturity (YTM) on a bond the same thing as the required return? Is YTM the same thing as the coupon rate? Suppose today a 10% coupon bond sells at par. In 2 years from now, the required return on the same bond is 8%. What is the coupon rate on the bond then? What is the YTM? (10 marks)