3.) Suppose that deflation occurs in the U.S. economy and that the CPI (as a measure of f) is expected to decrease an average of 1% per year for the next five years. A bond with a face (par) value of $10,000 and a life of five years (i.e., it will be redeemed in five years) pays an interest (bond) rate of 4% per year. The interest is paid to the owner of the bond once each year. If an investor expects a real rate of return of 3% per year, what is the maximum amount that should be paid now for this bond?

2. A company that manufactures general-purpose transducers invested $2 million 4 years ago in high-yield junk bonds. If the bonds are now worth $2.8 million, what rate of return per year did the company make based on (a) simple interest and (b) compound interest?

4.

1. A community experiences linear population growth at a yearly rate of 3%. The population in 2000 was 27,500; what was the population in 1985? Formula = i= n = Amt. = 2. Alan purchased a jeep 20 years ago; today it is worth $500. The jeep depreciates at an annual rate of 10%, compounded annually; how much did Alan pay for the jeep? Formula = n = Amt. = i= 3. Alicia invests $10,000 into a mutual fund that experiences linear grow at an annual interest rate of 7%. What is the value of her investment in 120 months? Formula = i= n = Amt. = 4. A community's population increases monthly as a product of its current population and the periodic growth rate (yearly rate is 3%). The population in 2000 was 27,500; what was the population in 1990? Formula = i= Amt. = 5. Jay deposits $500 into an investment account having a 7% annual rate of interest. Interest is added at the time Jay closes his account (120 months from the time of his deposit) and is based on the amount he deposited. What is the…