Question 1.

a) Your financial advisor has given you the following advice. A great Investment for your $10,000,000 should be in long term bonds offering an interest return of 20/25% per annum whereas short term bonds are only offering a low interest rate. Is the financial advice good? Give your recommendation and reasoning in no more than 350 words.

b) Calculate the yield to maturity of a coupon bond face value $10, 000, purchased for $8000.00 with an interest rate of 8%per annum that has 25 years to maturity and sold at 15 years.

Question 2.

During certain economic crises we have witnessed stock prices soaring prior to the crises (1980, 2008) taking hold and prices substantially declining as recessionary influences occur, causing a significant drop in stock prices. Economists would state that bubbles in market prices had been created prior to the crises. In 350 words max. Describe how governments can utilize an economic model to prick such stock market bubbles to normalize stock market price and assist in the development of fiscal policy.Describe the model and give examples.