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1. Current annual subscription is $250 payable at start of each year. You expect subscription price to increase at rate of 2% per annum. You will retire in 20 years. WSJ offers a lifetime subscription of $1800. Assuming you can earn 5% annually. Which deal is better, annual subscription (last payment is year 19 or lifetime? Using PV of deferred growth annuity formula.

2. Mittbama bought a coupon bond with 5 years to maturity at a price of 85 dollars. The bond has a face value of 100 dollars, and a 10% coupon rate. He sold the bond with 3 years to maturity to a bond dealer. (a) Suppose the dealer has a discount rate of 8%, what is the price he would pay for the bond? (b) Given the sale price of the bond, calculate Mittbama's rate of return.

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Financial Management, Finance

Category:- Financial Management
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