1. Today, Sweet Snacks is investing $490,000 in a new oven. As a result, the company expects its cash flows to increase by $63,000 a year for the next two years and by $99,000 a year for the following three years. How long must the firm wait until it recovers all of its initial investment? (5 points)

2. Define term structure of interest rates. What are the main determinants of the term structure of interest rates? (5 points)

3. Red Mountain, Inc. bonds have a face value of $1,000. The bonds carry a 4 percent coupon, pay interest semiannually, and mature in 14.5 years. What is the current price of these bonds if the yield to maturity is 5.48 percent? (5 points)