1. Your broker calls you up and tells you that she found a good deal on a bond. It's an 8% coupon bond paid annually with a face value of $1,000. It has 12 years until maturity. Using a discount rate of 7% what is the present value of this investment? If the price of the bond is $1,200 should you buy it or fire your broker?
2. Given a choice of two investments, would you choose one that pays a total return of 24% over the five years or one that pays 0.5% per month for four years?