1. What four things must happen to earn the yield to maturity on a bond? Explain how to create a risk free position of spot assets and call options.
2. Assume that, starting next year, you make annual deposits of $ 209 into a savings account that pays 9% interest. How much will you have in your account after 6 years?
3. With respect to the level of risk and the required return for a company’s portfolio of projects, discuss how the market and the company’s management can have inconsistent information and expectations.