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1. What is the annual coupon payment for a bond (par value of $1,000) with 7 years until maturity, a price of $1,000, and a discount rate of 6%?
a) $80
b) $70
c) $60
d) $50
e) None of the above
2. What happens to the price of a three-year bond with an 8% coupon when interest rates change from 6% to 8%?
a) A price increase of $53.47
b) A price decrease of $51.54
c) A price decrease of $53.47
d) No change in price
3. What is the rate of return for an investor who pays $1,000 for a three-year bond with a 7% coupon rate and sells the bond one year later for $1,000?
a) 5%
b) 6%
c) 7%
d) 8%
e) none of the above
Expected and required rates of return Assume that the risk-free rate is 3% and the market risk premium is 8%. What is the required return for the overall stock market? What is the required rate of return on a stock with a beta of 0.5?
Barry and his wife Mary have accumulated over $4.10 million during their 45 years of marriage. They have five children and five grandchildren. How much money can they gift to their children and grandchildren in 2012 without any gift tax liability?
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