For bonds, assume coupons paid semi-annually, coupon rates and yields quoted with semi- annual compounding, and redeemable at par unless otherwise noted (Ignore it if it's not relevant to the question).

1. Assuming a reinvestment rate of 5% for all cashflows, which of the following would provide the highest rate of return to an investor over the next 5 years: a. A stock priced at $125 that is paying a dividend of $5 and growing at a rate of 2% per year. b. A seven-year bond that is priced at $125 and has a coupon rate of 10%. c. A 10-year annual amortizing loan of $125 at an interest rate of 12%.

2. What is the overall yield to a lender who loans $8000 for 10 years at 4% and reinvests the annual amortizing payments at 5%?