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P4-1. A best-selling author decides to cash in on her latest novel by selling the rights to the books royalties for the next four years to an investor. Royalty payments arrive once per year, starting one year from now. In the first year, the author expects $400,000 in royalties, followed by $300,000, then $100,000, then $10,000 in the three subsequent years. If the investor purchasing the rights to royalties requires a return of 7 percent per year, what should the investor pay?

P4-2. An oil well produces 20,000 barrels of oil per year. Suppose the price of oil is $50 per barrel. You want to purchase the right to the oil produced by this well for the next five years. At a discount rate of 10 percent, what is the value of the oil rights? (You can assume that the cash flows from selling oil arrive at annual intervals.

P4-5. A bond sells for $900 and offers a coupon yield of 7.2 percent. What is the bonds annual coupon payment?

P4-7. A bond makes two $45 interest payments each year. Given that the bonds par value is $1,000 and its price is $1,050, calculate the bonds coupon rate and coupon yield.

P4-13. You are evaluating two similar bonds. Both mature in four years, both have a $1,000 par value, and both pay a coupon rate of 10 percent. However, one bond pays that coupon in annual installments, whereas the other makes semiannual payments. Suppose you require a 10 percent return on either bond. Should these bonds sell at identical prices or should one be worth more than the other? Use Equations 4.2a and 4.3a, and let r =10%. What prices do you obtain for these bonds? Can you explain the apparent paradox?

P4-21. You purchase a U.S. Treasury inflation-indexed bond at par value of $1,000. The bond offers a coupon rate of 6 percent paid semiannually. During the first six months that you hold the bond, prices in the United States rise by 2 percent. What is the new par value of the bond, and what is the amount of your first coupon payment?

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