1. Diane Carter is interested in buying a five-year zero coupon bond with a face value of $1,000. She understands that the market interest rate for similar investments is 7.76 percent. Assume annual coupon payments. What is the current value of this bond?
2. You planned to go back to school for a graduate degree in 5 years. Your graduate studies will take 2 years to complete. The tuition for the graduate school will be $45,000 per year. (Assume you pay the tuition at the end of each year.) You want to start saving for graduate school from next year by putting equal amount of money every year, for 5 years, in your bank account. If your bank pays 10% interest on your savings account, how much money do you have to save every year so that you can go to graduate school?