Q1: The real risk-free rate is 2.5% and the future rate of inflation is expected to be constant at 4.1%.

What rate of return would you expect on a 4-year Treasury note if the pure expectations theory is valid? Disregard cross-product terms, i.e., use the best approximation.

Q2: One year ago, Gangnam Inc. issued a 12-year, 6% semiannual coupon bond at its par value of $1,000. The bond can be called in 8 years at a price of $1,100 and it now sells for $855.49. The bond has a yield to maturity of 8%. What is the current yield?

Q3: You currently don't have a car, but rent a car that's parked just outside your house whenever you need one. Your annual expenditure on rental cars is $2,600.

You are now considering purchasing a car that would give you the same level of convenience as your current lifestyle. The car costs $24,000 and can be sold for $5,000 after 10 years. You'd purchase the car with money from your savings account which always earns an interest rate of 6%.

Assume that all cash flows occur at the end of each year (maybe because you drive much more around Thanksgiving and Christmas).

What is the present value of the benefits of owning that car, i.e., saving on rental expenses and selling the car?

Q4: Treasury spot interest rates are as follows:

Maturity (years)	1	2	3	4
Spot rate (EAR)	1.7%	2.8%	3.2%	4.5%

What is the price of a risk-free zero-coupon bond with 3 years to maturity and a face value of $1,000 (in $)?

Q5: BankMart Inc. recently issued bonds that mature in 12 years. They have a par value of $1,000 and an annual coupon of 3%. The current market interest rate is 9%. What is the bond's value?