Finance 100 Problem Set

Bonds (Alternative Solutions)

Note: Where appropriate, the final answer for each problem

is given in bold italics for those not interested in the discussion
of the solution.

I. Formulas
This section contains the formulas you will need for this problem set:

1. Present Value (PV) Formula (a.k.a. Zero Coupon Bond Formula):

VN
V0 = (1)
(1 + R/m)mT
where VN is the dollar amount to be received N periods in the future.
m is the number of compounding periods per annum, T is the number
of years until the money is received and R is the nominal interest rate
(a.k.a. APR). Note that this formula is equivalent to:
VN
V0 =
(1 + i)N
since i = R/m and N = mT . I will use this notation interchangeably
throughout.
2. Future Value (FV) Formula:

VN = V0 (1 + i)N (2)

where V0 is the dollar amount received today. Note that the future
value formula is just an algebraic manipulation of the present value
formula.

1
 3. Present Value of an Annuity Formula:
a a a a
A0 = + 2
+ ... + N 1
+
(1 + i) (1 + i) (1 + i) (1 + i)N
1 (1 + i)N
= a (3)
i
where a is the amount of the annuity payment and i and N are as
defined above.
4. Spot and Forward Rate Relation:
(1 + rn+t )n+t = (1 + rn )n (1 + fn,t )t (4)
where rn+t is the (n + t)-period spot rate, rn is the n-period spot rate
and fn,t is the t-period forward rate from period n to (n + t).
5. DV01 (Dollar Value of One Basis Point):
DV 01 = B(R 0.01%) B(R) (5)
where B(R) is the bond price at interest rate R. This is method one
from the lectures. See the lecture slides for the other two methods of
computing DV01.
6. Macaulay Duration:
N
(1 + i) B0 (1 + i) X
D= = Tn cn (1 + i)n (6)
mB0 i mB0 n=1

where B0 is the price of the bond and Tn is the time in years to the nth
cash flow, cn . An alternative representation is:
1
[T1 P V (c1 ) + T2 P V (c2 ) + ... + TN P C(cN )] (7)
B0
where P V (cn ) is the present value of the nth cash flow. Modified Du-
ration adjusts this figure by dividing by (1 + i).

II. Problems
1.
The time line of our cash outlays for the college expense are presented in
Figure 1.

2
 Figure 1:
Cash Flow 0 $20,000 $20,000

Time Period 0 1 2

1.a
The present value of these cash flows, and thus the amount we must
invest today, is:
$20, 000 $20, 000
+ = $35,587.21
1.042 1.044
The discount rate follows from the 8% yield-to-maturity (R = 0.08) and
semi-annual compounding (m = 2), implying i = 4%.

1.b
Scenario 1: Unchanged Interest Rates. If we spend $35,587.21 on 4-year zeros
today, this means we own bonds with a total face value (or par amount) of:

$35, 587.21 (1.04)8 = $48, 703.55

At the end of year 1, we need $20,000 for the first payment. Thus we need
to sell some fraction of our bond holdings; that fraction is determined by the
market in the following manner:
par
= $20, 000 (8)
(1.04)6
We are just solving the zero formula in reverse to determine the par value
we must sell in the market to receive $20,000 in year 1. The solution is
par = $25, 306.38.
After the sale, we are left with bonds with a total face value of $48, 703.55
$25, 306.38 = $23, 397.17 At the end of year 2, we need to make another pay-
ment of $20,000. Solving a similar equation to (8):
par
= $20, 000 (9)
(1.04)4

3
yields a par value of $23,397.17, exactly equal to the par amount of our
remaining bonds. So we simply sell all of the remaining bonds, collect the
$20,000 and make the payment.
Scenario 2: Instantaneous Decrease in Interest Rates to 7%. Before solv-
ing this part, here is some intuition. We have locked in (i.e. guaranteed)
a return of 8% while the interest rate has decreased to 7%. This is good
for us because we are getting a higher return on our investment relative to
the new rate. Therefore, we should expect to have excess cash after we pay
off our expenses, given that the above derivation shows we exactly meet our
expenses when the interest rate does not change.
From above, we own bonds with a par amount of $48,703.55. At the
end of year one, we must go to the market and redeem some fraction of our
holdings to make the $20,000 payment. The par amount of bonds we need
to sell is given by:
par
= $20, 000
(1.035)6
which yields $24,585.11 (note the use of the new discount rate). This leave us
with bonds with a total face value of $48, 703.55 $24, 585.11 = $24, 118.44.
In year two, we must go to the market again and sell some fraction of our
bonds to make the second payment of $20,000. Solving
par
= $20, 000
(1.035)4

yields a par amount of $22,950.46 which implies we will have bonds with a
par value of $24, 118.44 $22, 950.46 = $1, 167.98 left over. Note that this is
not the same as having $1,167.98 in cash. To get cash we have to go to the
market and sell these bonds. If we did, we would receive:

$1, 167.98, 44
= $1, 017.83
(1.035)4

Thus, we have an excess of $1,017.83.

Scenario 3: Instantaneous Increase in Interest Rates to 9%
Before solving this part, here is some intuition. We have locked in at 8%
while the interest rate has increased to 9%. This is not good for us because
we are getting a lower return on our investment. Thus, we should expect to
have a shortage of cash for our expenses.

4
 Approaching the problem as before, we must sell:
par
= $20, 000
(1.045)6

$26,045.20, par value, of our bonds. This transaction leaves us with bonds
totaling $48, 703.55 $26, 045.20 = $22, 658.34 in par value.
In the second year, if we sell all of our remaining bonds, we will receive:
$22, 658.34
= $19, 000.41
(1.045)4

implying a shortfall of $999.59.

1.c
Scenario 1: Unchanged Interest Rates. From part 1.b, the present value of
our expense is $35,587.21. Spending this amount on 1-year zeros implies a
face value of
$35, 587.21 (1.04)2 = $38, 491.13.
At the end of year one, when the bonds mature and pay their par value,
we must sell $20,000 and reinvest the remaining $18,491.13 in one-year zeros
again. At then end of the second year, our bonds will be worth

$18, 491.13 (1.04)2 = $20, 000,

exactly equal to the second payment.

Scenario 2: Instantaneous Decrease in Interest Rates to 7%. Before solv-
ing this part, here is some intuition. We have locked in (i.e. guaranteed) a
return of 8% only for the first year, while the interest rate has decreased to
7%. Thus, our investment in the second year will suffer from this lower rate
of return and we should have a shortage of funds.
We know from above that we are left with $18,491.13 after the first pay-
ment. Investing this in one-year zeros at the new interest rate of 7% en-
sures a payoff at the end of year two of equal to $18, 491.13 (1.035)2 =
$19, 808.16. Thus, we will have insufficient funds in the amount of
$20, 000 $19, 88.16 = $191.84.
Scenario 3: Instantaneous Increase in Interest Rates to 9%. Before solv-
ing this part, here is some intuition. We have locked in (i.e. guaranteed) a
return of 8% only for the first year, while the interest rate has increased to

5
9%. Thus, our investment in the second year will benefit from this higher
rate of return and we should have a surplus of funds.
We know from above that we are left with $18,491.13 after the first pay-
ment. Investing this in one-year zeros at the new interest rate of 9% ensures
a payoff at the end of year two equal to $18, 491.13 (1.045)2 = $20, 192.78.
Thus, we will have excess funds in the amount of $20, 192.78$20, 000 =
$192.78.

2.
One way to approach this problem is to compute the implied forward rate
from the two spot rates and compare it to the one being offered (7%). If the
offered rate is higher than the implied rate, we should choose the long term
option in order to lock in a lower forward rate. If the offered rate is lower
than the implied rate, we should take out the short term loan in order to
take advantage of the lower rate.
We can use the forward rate relation to determine the implied forward
rate. The one year spot rate (i.e. the annual interest rate offered today on a
1-year bond), r1 , is 8%. The two year spot rate (i.e. the annual interest rate
offered today on a two-year bond), r2 , is 7.5%. The implied one-year forward
rate can be found by solving the general forward rate relation (equation (4))
for the case where n = 1 and t = 1:

(1 + r2 )2 = (1 + r1 )1 (1 + f1,1 )1
(1 + r2 )2
f12 = 1.
1 + r1
Plugging in for the spot rates yields:

1.0752
= 1
1.08
= 7.002315%,

which is slightly greater than what is being offered, 7%. Therefore, we

should take option 1 to avoid locking in a (slightly) higher forward
rate implicit in the two year loan.
An alternative approach to the problem is to just look at the cash flows.
Option one provides a cash inflow of $2 million today and a cash outflow of
$2 (1.08) = $2.16 million in year 1. Option 2 provides a cash inflow of $2

6
million today and a cash outflow of $2 (1.075)2 = 2.31125 million in year
2. Regardless of which option we choose, we receive a payment in year one
that exactly offsets the amount we owe on the short term loan (i.e. $2.16
million).
If we undertake option 2, we are required to invest the $2.16 million that
we receive in year 1 at a forward rate of 7% for one more year. This results
in a cash inflow at year 2 of $2.16 (1.07) = $2.3112 million. Note that this
is not quite enough to cover the amount that we owe on the two year loan
($2.31125 million). Thus, we should choose option 1.

3.
The annual coupon rate is 6%. A semi-annual coupon payment implies we
get 6%/2 = 3% of the face value every six months, or $3. The nominal yield-
to-maturity is 12% per annum. With semi-annual compounding (consistent
with the semi-annual coupons), the periodic interest rate is 12%/2 = 6%. The
cash flow stream consists of 12 years of semiannual coupons in the amount of
$3 and 1 balloon payment at maturity for the face value of $100. The cash
flows are presented graphically in Figure 2.

Figure 2:
Cash Flow 0 $3 $3 $3 $3 $3 $3 + $100

Time Period 0 1 2 3 22 23 24

We can recognize these cash flows as corresponding to two other types

of bonds. The stream of coupons can be thought of as an annuity and the
principal payment may be thought of as a zero coupon bond. Thus, we can
value the coupon payments using our annuity formula, the principal payment
using our zero coupon formula and add the results to get the value of the
coupon bond.

7
 Valuing the annuity portion yields

1 (1 + i)24
a
i
1 (1 + 0.06)24
= $3
0.06
= $37.65

The value of the zero portion is

$100
= $24.70
(1.06)24

Adding these two figures gives the current value of the bond: $62.35.

4.
The question is asking us to find the payment that would make us indifferent
between receiving that lump-sum amount at the end of the year and monthly
payments of $10,000 throughout the year. The most direct way to do this
is to simply compute the value of the monthly payments at the end of one
year, which amounts to computing the future value of an annuity.
12
1 + 0.12
12
1
$10, 000 0.12 = $126, 825.03
12

Thus, we are indifferent between receiving a lump-sum payment of $126,825.03

at the end of the year or $10,000 each month.

5.
5.a
Using the same logic as in problem 3, we can value this bond as the sum of
an annuity and a zero. For the annuity portion, the periodic payment, a, is
$25, which follows from a 5% coupon rate, $1,000 face value and semi-annual
coupons. The periodic interest rate i = 3% follows from the market rate
(R) being 6% and a semi-annual compounding period (m = 2). Finally, the
total number of payments (or periods in the annuity) is 7 years (T ) times 2

8
payments per year so that N = T m = 14 periods. The present value of the
annuity, using our annuity formula

1 (1 + i)N
a
i
is
1 (1.03)14
$25 = $282.40
0.03
The value of the zero portion of the bond is simply the present value of
the par amount, or
$1, 000
= $661.12
(1.03)14
The current price is the sum of the annuity and zero values, or
$943.52 . Thus, the bond is currently selling at a discount relative to par
(i.e. face value).

5.b
The effective annual rate may be found from the following relationship:

(1 + r) = (1 + i)2

Substituting for i, which is just the periodic interest rate of 3%, computed
above, yields an effective annual rate r equal to 6.09% . Note that this
is not equal to the annual market rate of 6% and, in fact, is greater than 6%.
This a consequence of interest earning interest. That is, the interest you
earn on your money after the first compounding period earns interest during
the second compounding period. By this logic, we would like our investments
to be compounded as frequently as possible.

5.c
This price was calculated in part 5.a:

$1, 000
B0 = = $661.12
(1.03)14

9
 5.d
The bond from part 5.a is now worth

1 (1.035)14
$25 = $273.01
0.035
(the value of the annuity portion) plus
$1, 000
= $617.78
(1.035)14
(the value of the zero portion). The current price is thus $890.79 .
The bond from part 5.c was calculated in valuing the coupon
bond and is worth $617.78.

6.
6.a
The question is asking to find the periodic payment of a 180-period annuity
with a present value of $400,000. A summary of the information using our
notation is:

T = 15
m = 12
N = 180
A0 = $400, 000
R = 9.5%
i = 0.79167%

The present value formula for an N -period annuity is given above in equation
(3). Solving this equation for the periodic payment, a, yields:
i
a = A0
1 (1 + i)N
Substituting produces the answer:
0.0079167
a = $400, 000
1 (1.0079167)180
= $4,176.90 .

10
 6.b
This is most easily done in Excel but here is an explanation of what is
happening. Consider the end of the first month when the first payment is
due. The principal is $400,000 and one months worth of interest has accrued
400, 0000.0079167 = 3, 166.70. You pay 4,176.90 which means the principal
is reduced by 4, 176.903, 166.70 = 1, 010. 20. Continue this process 179 more
times or let Excel do the rest of the work.

6.c
After you make your 12th payment, the principal left on your loan is $387,335.19
(this may be found in the amortization table you created for part 6.b). You
apply your $200,000 bonus to this amount so that the new principal re-
maining is $187,335.19. You can continue with the same amortization idea
presented in 6.b in your Excel spreadsheet. You should find that you will
need another 56 months for a total payback period of 68 months.
The last month will not require the full $4,176.90, only $2,580.76.

7.
First, consider Figure 3, which illustrates the association between forward
and spot rates.

Figure 3:

(1+r1) (1+f1,1)

(1+r2)2

Time 0 1 2

The r1 and r2 correspond to the 1-year and 2-year spot rates and f1,1 is
the one year-ahead forward rate. The picture shows that there are two ways
to get money after two years: (1) invest in a two year bond today (time 0)
at the two-year spot rate, r2 or (2) invest in a one year bond today at the

11
one-year spot rate, r1 and then reinvest the earnings at time 1 in another
bond at the forward rate, f1,1 , which is agreed upon today (time 0).

7.a
Investing $100 in the one-year spot and then investing in the
one-year forward will produce
$100 (1 + 0.05) (1 + 0.06) = $111.30,
which is represented graphically in Figure 4

Figure 4:
100 x (1+0.05) 105 x (1.06)
Invest $100 105 111.30

Time 0 1 2

7.b
We need to solve for r2 in the following equality
100 (1 + r2 )2 = 111.30
This equation equates an investment of $100 for two years at the current
two-year spot rate to the payoff from the investment strategy in part a).
Algebra reveals that the two-year spot rate is 5.50% .
An alternative approach is to simply use the no-arbitrage relationship
between forward and spot interest rates. Looking at Figure 4 investing $1 at
the one-year spot and one-year forward must be equivalent to investing $1
at the two year spot. Thus,
$1 (1 + r1 ) (1 + f1,1 ) = $1 (1 + r2 )2
Solving this relation for the two-year spot rate yields
q
r2 = (1 + r1 ) (1 + f1,1 ) 1

= 1.05 1.06 1
= 5.5%

12
8.
Begin by finding the monthly payment required on an annuity with present
value $155,000.
0.11/12
a = $155, 000 = $1, 476.10
1 (1 + 0.11/12)360
(This is just algebraic manipulation of the annuity formula, (3)) Next we
need to find the amount of remaining principal after 10 years of repayment,
which is the value of an annuity with 240 periods remaining and a periodic
payment of $1, 476.10 or

1 (1 + .11/12)240
$1, 476.10 = $143, 006.84
.11/12
The prepayment penalties and closing costs equal 5% $143, 006.80 =
$7, 150. 34. This implies that their new principal amount, inclusive of
penalties and closing costs, is $143, 006.84 + $7, 150.34 = $150, 157.18.
To see if this option is better than the original mortgage, we just need to
see if the monthly payment is bigger or smaller than the original.
0.09/12
a = $150, 157.18 = $1, 351.00
1 (1 + 0.09/12)240
The cost is less so they should refinance.

9.
Lets value this by creating a replicating portfolio. That is, lets buy some
amount (possibly 0) of each bond so that the cash flows of our portfolio
exactly match the cash flows of the bond we are trying to value. By the
principle of no-arbitrage, the value of our replicating portfolio should exactly
equal the value of the bond. See Table 1.
Since the portfolio perfectly replicates the cash flows of the coupon bond,
the values of the two must be equal by arbitrage arguments. Therefore, the
bond price is $97,412.50 .

10.
Before we solve this problem, consider Figure 5 which graphically illustrates
the forward-spot relations.

13
 Table 1:

Periodic Cash Flows

Security 1 2 3 Cost
Coupon Bond 5,000 5,000 105,000 ?
Replicating Portfolio
50 units of bond A 5,000 0 0 50 $95.24 = $4, 762.00
50 units of bond B 0 5,000 0 50 $89.85 = $4, 492.50
1,050 units of bond C 0 0 105,000 1050 $83.96 = $88, 158.00
Total Cash Flows 5,000 5,000 105,000 $97,412.50

The time line shows that there are four ways to invest, each of which
should yield exactly the same payoff if the no-arbitrage condition is to hold.
In order, from top-to-bottom, they are

1. invest for one-period at the one period spot, r1 , and then for two periods
at the forward rate f1,2 ,

(1 + r1 ) (1 + f1,2 )2

2. invest for one period at the one year spot, r1 , then for another period
at the 1 period forward rate f1,1 and then for one more period at the
forward rate f2,1 ,
(1 + r1 ) (1 + f1,1 ) (1 + f2,1 )

3. invest for three periods at the three-period spot rate r3

(1 + r3 )3

4. invest for two periods at the two-year spot rate r2 and then invest for
one more year at the one period forward, two years hence. f2,1

(1 + r2 )2 (1 + f2,1 )

The payoffs from investing $1 in each of these four strategies is given by

the corresponding equation. The rest of this problem amounts to equating
two of these payoffs and solving for the forward rate. There are several ways

14
 Figure 5:
(1+r1) (1+f1,2)2

(1+r1) (1+f1,1) (1+f2,1)

(1+r3)3

(1+r2)2 (1+f2,1)

Time 0 1 2 3

to solve for each forward rate. You may want to check an alternative to
convince yourself of this fact.
The given spot rates are:

r1 = 0.05
r2 = 0.055
r3 = 0.06

f1,1 : To find the one-period forward rate one-period hence we set up the
following equality:
(1 + r1 ) (1 + f1,1 ) = (1 + r2 )2
The left hand side is the payoff from investing $1 in a one-year bond and
then investing the proceeds for an additional year at f1,1 . The right hand
side is the payoff from investing $1 in a two year bond. Rearranging yields,

(1 + r2 )2
f1,1 = 1
1 + r1
1.0552
= 1
1.05
= 0.06

for a one-year long, one-year hence forward rate of f1,1 = 6% .

15
 f2,1 : To find the one-period forward rate two-periods hence, we begin
with
(1 + r2 )2 (1 + f2,1 ) = (1 + r3 )3
The left hand side is the payoff from investing $1 in a two-year bond and
then investing the proceeds for an additional year at f2,1 . The right hand
side is the payoff from investing $1 in a three year bond. Rearranging yields,
(1 + r3 )3
f2,1 = 1
(1 + r2 )2
1.063
= 1
1.0552
= 0.07
for a one-year long, two-period hence forward rate of f2,1 = 7% .
Alternatively, we could have used the previous result and began with
(1 + r1 ) (1 + f1,1 ) (1 + f2,1 ) = (1 + r3 )3
The left hand side is the payoff from investing $1 in a one-year bond, investing
the proceeds for an additional year at f1,1 and then investing the proceeds
for a final year at f2,1 . The right hand side is the payoff from investing $1 in
a three year bond. Rearranging yields,
(1 + r3 )3
f2,1 = 1
(1 + r1 ) (1 + f1,1 )
1.063
= 1
(1.05) (1.06)
= 0.07
f1,2 : We can derive the two-period forward one period hence beginning
with
(1 + f1,2 )2 = (1 + f1,1 ) (1 + f2,1 )
The left hand side is the payoff from investing $1 for two years beginning
next year at a rate of f1,2 . The right hand side is the payoff from investing
$1 for one year at f1,1 next year and then reinvesting the proceeds for an
additional year at f2,1 . Rearranging yields
q
f1,2 = (1 + f1,1 ) (1 + f2,1 ) 1

= 1.06 1.07 1
= 0.065

16
for a two-year long, one year hence forward rate of f1,2 = 6.5% .

11.
Lets just compare the monthly payments since the terms (lengths) of the
two contracts are the same. This requires finding the fixed payment of an
annuity. Rearranging equation (3) yields:
i
a = A0
1 (1 + i)N

The present value of the annuity is simply the size of the loan, $58,000,
since that is what you receive today. The periodic interest rate, i, is R/m
or 5.5%/12. The maturity is 5 years with monthly payments implying 60
periods. Thus, the monthly payments for the first deal are

0.055/12
a = $58, 000 = $1, 107.87
1 (1 + 0.055/12)60

The monthly payments for the second deal, with the $4,000 discount sub-
tracted from the loan principal and the higher interest rate, is

0.06/12
a = $54, 000 = $1, 043.97
1 (1 + 0.06/12)60

Therefore, since the monthly payments are lower, you should take
the $4,000 discount and higher rate.

12.
Figure 6 presents a time line of the cash flows:

Figure 6:
Cash Flow 0 $0.12 $0.12 $0.12 $0.12 + $2
(Millions)

Time Period 0 3 6 9 12 69 72 75
(Months)

17
 One way to value this bond is to find the present value of the cash flows as
of 3 months ago and then find the 3-month future value of this number (this
implicitly assumes that the interest rate did not change between 3 months
ago and today). Three months ago, our bond was maturing in six and a
half years, implying a total of 13 semiannual payments of $0.12 million.
Recognizing that the value of the coupon bond is the sum of the annuity
portion and zero portion we get:

1 (1 + 0.03)13 2
$0.12 + = $2.64 million
0.03 (1.03)13

This was the value of our bond, 3 months ago. To get the value today, we
must find the future value of this number, 3 months hence.

$2.64 (1.03)0.5 = $2.68 million

An alternative approach is to value the bond as of 3 months from today

and then discount this value back to today. In 3 months we will receive $0.12
million. Including that initial payment, which need not be discounted, the
value of our bond in 3 months is:
1 (1 + 0.03)12 $2
$0.12 + $0.12 + = $2.72 million
0.03 1.0312
Now we need to discount this value back half a period.

$2.72
= $2.68 million
1.031/2
The value of the bond is $2.68 million

13.
13.a
Recall that the yield (i.e. yield-to-maturity, YTM) is the one rate that
discounts all of the bonds cash flows to give the present value of the bond.
The yield may be found by solving the following equation.
8 8 108
100 = + 2 +
1 + y (1 + y) (1 + y)3

18
You may solve this equation by trial and error or using Excels solver.1 The
yield is 8% .
In fact, we didnt really need to solve this equation to find the yield. Since
the bond is trading at par and we are valuing it on a payment date, the yield
has to equal the coupon rate.

13.b
The Macaulay duration is computed according to the following formula (see
equation (7))

1 8 8 108
1 +2 +3 = 2.78
100 1.08 1.082 1.083

The modified duration measure adjusts this figure by dividing by

(1 + i) = 1.08, which equals 2.57 . DV01, or dollar value of one basis
point, is computed using equation (5):

DV 01 = B(R 0.01%) B(R)

The bond price at R = 8% is given as $100. The price at R = 7.99% is:

8 8 108
B(7.99%) = + 2
+
(1.0799) (1.0799) (1.0799)3
= 100.02578

Therefore, DV01 is 100.02578 100 = 0.02578.

13.c
We know from above that a one basis point decline results in a price increase
of $0.02578. Therefore, a 10 basis point decline results in an approximate
price increase of 10 $0.02578 = $0.2578.

14.
The Macaulay duration of zero-coupon bonds equals their maturity since all
of the cash-flows occur in the final time period. When interest rates change
1
A technical note: In fact, there is an analytic solution to the cubic equation. You
will get three answers corresponding to the order of the polynomial, but only one of the
solutions will be real. The other two will be a complex conjugate pair.

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the value of a zero will change by

D
y
1+y

where D is the duration and y is the yield. Substituting the relevant figures
for the zero-coupon bond gives us
2
0.5% = 0.94%.
1.06
Substituting for the coupon bond gives us
12
0.5% = 5.61%
1.07
So, if the interest rates increase by 50 basis points, the value
of the firms liabilities decreases by roughly $9,434 since they sold
the zeros. The assets value decreases by roughly $56,000 so the
net effect is that the firm value falls by roughly $46,566.

These solutions are produced by Michael R. Roberts. Thanks go to Jen Rother for
her excellent assistance, and to an anonymous TA. Any remaining errors are mine.

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