1. Explain how the component of interest rates such as real risk free rate, inflation rate ,default risk premium, liquidity premium and maturity risk premium apply in bonds.
2. Your parents would pay you $3500 a year for 10 years but the first payment you get is when you finish your studies in 5 years time. Calculate present value and future value for what your parents offer you. Assuming the interest rate is 10% p.a.