Mr. Chan is the portfolio manager for a large insurance company. He is considering investing $5 million to purchase some bonds of Khabet Inc. All of Khabet's bonds have market prices that imply a yield to maturity of 8% (paid semi-annually). He is particularly interested in a bond that matures in 6 years and pays a 10% coupon. At what price should this bond currently sell? a) You are the beneficiary of a life insurance policy. The insurance company informs you that you have two options for receiving the insurance proceeds. You can receive a lump sum of $250,000 today or receive payments of $1,400 a month for 20 years. You can earn 6 percent on your money. Which option should you take? b) You want to buy a house. You have $20,000 for down payment and closing costs. The down payment is 10% and the closing costs are 10% of the loan amount. The bank is willing to allow you to make monthly payments of 30% of your salary at an annual interest rate of 8% for 30 years, and your annual salary is $36,000. c) How much can you offer for the house?

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