1. What is a financial option? Why are financial options important?

2. You need $40,000 five years from now to pay off a balloon payment on your house You buy 30 bonds at face value with five -year maturities yielding 6.2 percent. Will you have enough to meet your obligation at the end of five years?

3. Shidao, Inc. just purchased some equipment at a cost of $650,000. What is the proper method for computing the depreciation expense for year 3 if the equipment is classified as 5-year property for MACRS? The MACRS schedule the following depreciation rates for year 1 to 6: 20%, 32%, 19.2%, 11.52%, 11.52%, and 5.76% respectively.