1. Fill in the missing data for the table below.

2.
A. Use the following bonds to calculate the forward rate for the next 23 months. Assume each bond has a face value of $1,000 and that the quoted prices include accrued interest. All bond prices and coupons are in units of 100.

B. Use your results from part 1 to calculate spot rates going out 5, 11, 17 and 23 months.

3. You are planning to develop a shopping mall. It will take two years to build, and cost $20 million per year to construct with payments due in years 0 and 1. Once built, you expect to rent space in it for $4 million per year for 10 years, via long term leases. After the leases expire you intend to continue renting the building out, but at the reduced rate of $3 million per year forever. If the appropriate interest rate equals 12% what is the present value of this project?

4. Big Motors Inc., is running a promotion: BUY our NEW 2000 BigUm Machine! Your choice our INCREDIBLE lease of $2,000 down, $550 per month, with a residual value of $20,000 in three years (total of 36 payments starting in month 1). OR get our 3 year 0% (THAT"S RIGHT WE SAID ZERO PERCENT!) loan. Just put $5,000 down and the car is YOURS for only $26,000! ( 36 monthly payments of $666.67.)

After a little bit of research you find that on average Big Motors’ BigUm car tends to sell for 1/3 of its original cash purchase price after three years. You also find out that another dealer will sell you the same car for $21,000 if you pay cash and that a bank will lend you the funds at an annual interest rate of 15%.

What should you do? Take the lease, take the loan, or pay cash? Be sure to show all of your calculations.