Chapter 3: - Question 1:A)B) Despite the fact that Jack does not smoke, cigarettes can still function as money, simply because cigarettes in this case can as a medium of exchange or commodity money in the economy which in turn gives monetary value to cigarettes, just as the case is today with jewelry, gold, silver and such items which act as commodity money.

Chapter 4: Question 2:Obviously the 1.5% interest rate per day is more attractive than the 1% interest rate, because the higher the interest rate the more money we receive on our investment.(We are calculating the value of tomorrows dollar assuming a dollar today)1.5% interest rate = $1*(1+1.5%) = $1.0151.0% interest rate = $1*(1+1.0%) = $1.010As you can see, the higher interest rate the better.

Question 3:

The prize is really worth $4,545,950.50 Question 4:Years to MaturityYield to MaturityCurrent Price

22%$ 1038.83

24%$ 1000 since coupon = interest

34%$ 1000 since coupon = interest

52%$ 1094.27

56%$ 915.75

Formula for first bond: Formula for fourth bond:

Formula for fifth bond:

A bond equals its face price at maturity, unless the coupon rate is equal to the yield to maturity as was the case in bond 2 and 3.When yield to maturity is above the coupon rate, the bands current price is below its face value. The opposite holds true when yield to maturity is below the coupon rate. For a given maturity, the bonds current price falls as yield to maturity rises. For a given yield to maturity, a bonds value rises as its maturity increases. When yield to maturity equals the coupon rate, a bonds current price equals its face value regardless of years to maturity