1. You just inherited some money, and a broker offers to sell you an annuity that pays $5,000 at the end of each year for 20 years.You could earn 5% on your money in other investments of equal risk.What is the most you should pay for the annuity?
2. You want to invest in a corporate bond with a face value of $1,000, a coupon rate of 8% per year, and 10 years to maturity. The current annual yield to maturity of this bond is 6%. What is the current value of the bond, assuming interest is paid once per year? What would the value be if the interest is paid twice per year rather than once per year?