For Questions $7$ and $8,$ use the following information concerning Toyota Motor Credit Corp. $($TMCC$).$

On March $28,2008,$ Toyota Motor Credit Corp. $($TMCC$)$ issued new securities for sale to the public. Under the terms, TMCC promised to repay the owners of the securities $$100,000$ per unit of securities in March $2038,30$ years from the offering date. No interim payment is available between the issuance and the maturity of the securities$.$ On the date of issuance, investors paid TMCC $$32,103$ for each unit of these securities$.$

Question $7[5$ marks$]$

Suppose that the required rate of return for the TMCC$$s securities remains unchanged until the maturity. If you were to buy a unit of the securities on March $28,2018,10$ years from the issuance, what would the price of the securities be$?(*$Hint: figure out the discount rate first.$)$

Answer $($show the steps$/$calculation toward your results$)$:

$$

Question $8[5$ marks$]$

Suppose that when TMCC offered the security in $2008,$ the U$.$S$.$ Treasury had offered an essentially identical security. That is$,$ the U$.$S$.$ Treasury promised to repay $$100,000$ per unit in $30$ years from the offering date $($no interim payment$).$ Note that the U$.$S$.$ Treasury securities $($T$-$bill and treasury bonds$)$ are considered riskless, guaranteed by the government, whereas TMCC securities are not.

Which of the following statements is correct? Choose only one.

a$)$ When issued, the price of the Treasury security would be lower than that of TMCC security because the required rate of return for the U$.$S$.$ Treasury should be higher than TMCC$.$

b$)$ When issued, the price of the Treasury security would be lower than that of TMCC security because the required rate of return for the U$.$S$.$ Treasury should be lower than TMCC$.$

c$)$ When issued, the price of the Treasury security would be higher than that of TMCC security because the required rate of return for the U$.$S$.$ Treasury should be higher than TMCC$.$

d$)$ When issued, the price of the Treasury security would be higher than that of TMCC security because the required rate of return for the U$.$S$.$ Treasury should be lower than TMCC$.$

e$)$ NONE of the above

Answer: