1.
If you set up an annual sinking fund account to retire $1,000,000 debt in 10 years
@10% interest, how much will you have to pay into account annually?

2.
The prevailing (bank) interest rate is currently 10% per year. If an annuity pays
$1,000 annually for the next 10 years, what is such an annuity worth today?

3.
If the bond that matures in 10 years with the face (redemption) value of $1,000
pays coupon interest of $100 per year while the prevailing interest rate is 15%,
how much should the bond sell for?


4.
If a firm’s
is 3, and the market return is 10%, what is the required return on the
firm’s stock if the risk-free rate is 5%?

5.
If this company pays $8 dividend /share, what is the rational price of this firm’s
stock? If the stock currently trades at $80, is this a “must-buy” or “must sell”?
Why?

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