Please complete the followingproblems in Microsoft Word / Excel document and post to the dropbox.

1) Interest ratesand bond ratings (LO16-2) A previously issued A2, 15-yearindustrial bond provides a return three-fourths higher than theprime interest rate of 11 percent. Previously issued A2 publicutility bonds provide a yield of three-fourths of a percentagepoint higher than previously issued A2 industrial bonds of equalquality. Finally, new issues of A2 public utility bonds paythree-fourths of a percentage point more than previously issued A2public utility bonds.What should be the interest rate on a newlyissued A2 public utility bond?

2) Fourteen years ago, the U.S. Aluminum Corporation borrowed$6.5 million. Since then, cumulative inflation has been 98 percent(a compound rate of approximately 65 percent per year). a. When the firm repays the original $6.5 million loan thisyear, what will be the effective purchasing power of the $6.5million? (Hint: Divide the loan amount by one plus cumulativeinflation.) b. To maintain the original $6.5 million purchasing power, howmuch should the lender be repaid? (Hint: Multiply the loan amountby one plus cumulative inflation.) c. If the lender knows he will receive $6.5 million in paymentafter 14 years, how might he be compensated for the loss inpurchasing power? A descriptive answer is acceptable.

3)Tobacco Company of America is avery stable billion-dollar company with sales growth of about 5percent per year in good or bad economic conditions. Because ofthis stability (a correlation coefficient with the economy of +.3and a standard deviation of sales of about 5 percent from themean), Mr. Weed, the vice-president of finance, thinks the companycould absorb some small risky company that could add quite a bit ofreturn without increasing the company’s risk very much. He istrying to decide which of the two companies he will buy. TobaccoCompany of America’s cost of capital is 10 percent.

Computer Whiz Company(CWC) (cost $75 million)			AmericanMicro-Technology (AMT) (cost $75 million)
Probability	Aftertax Cash Flows for10 Years ($ millions)		Probability	Aftertax Cash Flows for10 Years ($ millions)
0.3	$ 6		0.2	$(1)
0.3	10		0.2	3
0.2	16		0.2	10
0.2	25		0.3.	25
			0.1	31

a. What is the expectedcash flow for each company?

b. Which company has thelower coefficient of variation?

c. Compute the net presentvalue of each company.

d. Which company would youpick, based on net present values