Question 1 A 5-year government bond valued at 1,000 is purchase when the market rate of interest is 8%. a) Calculate the annual repayment (value of the coupon) made to the investor at the end of year? (5 marks) b) Calculate the NPV of the agreed cash flow when interest rates change immediately to each of the following (the original 8% is included for comparison) 6.5%, 7.5%, 9%. (10 marks) c) Calculate the present value of the bond which is due to be repaid at the end of the 5-year lifetime. (5 marks) d) Comment on: (1) The relationship between interest rates and the attractiveness of bonds as an investment. (5marks) Question 2 The total cost and demand functions for two goods and 0 are given by the equations: and where and are the prices of the first and second goods respectively. (a) Write down the equations for (i) the total revenue and (i) profit. (6 marks) (b) Determine the number of units of each good which should be sold to maximise revenue. Calculate the maximum revenue. (6 marks) (c) Determine the number of units of each good which should be sold to maximise profits. Calculate the maximum profit. (6 marks) (d) Calculate the price elasticity of demand at maximum revenue and maximum profit for each good. Comment (7 marks)