1. Expected yield - You own a 6% bond maturing in two years and priced at 88%. Suppose that there is a 9% chance that at maturity the bond will default and you will receive only 41% of the promised payment. What is the bond’s promised yield to maturity?
2. Explain in your own words what a perpetuity is. What is the formula ( Hint look in chapter 5) for the present value of a perpetuity? If we had an investment account that pays us $5,000 a year forever, with a rate of 7% what is the PV?
3. Consider the following scenario: A company sells 11,000 units of a product this year resulting in $302,000 in sales revenue. If the company has $175,000 in variable expenses, and $85,000 in fixed expenses, what is the net income (or loss) that would be expected?