1. Assume you expect to receive $400 in year 1, $500 in year 2, and $400 in year

Question

1. Assume you expect to receive $400 in year 1, $500 in year 2, and $400 in year 3. What is the present value of this series of cash flows, assuming 3% annual rate of interest? __________________________________

2. Assume you expect to receive $400 in year 1, $500 in year 2, and $400 in year 3. What is the future value of this series of cash flows, assuming 3% annual rate of interest? ___________________________________

3. What is the present value of a 15-year annuity that pays $50 per year, assuming 12% annual interest rate ? _________

4. Assume you currently have $4,000. If you deposit this money in a bank account at an annual interest rate of 2.5%, and in addition deposit $500 at the end of each year for the next 7 years, how much will you have in the account after 7 years? ___________________________

5. What is the present value of receiving $500 per year forever, assuming 6% interest rate? ____________________

6. Assume you deposit $600 in an account, and that in 6 years you have $900. Assuming daily compounding frequency what is the quoted annual interest rate associated with the account? Avoid rounding until the final answer! ______________________________________

7. How many years would it take for a $100 deposit to grow to $200 at a 5% quoted annual interest rate, under monthly compounding? _____________________________________

8. Assume the annual periodic rate is equal to 14.00%, and that the compounding frequency is daily. What is the corresponding effective annual rate equal to?___________________________

Explanation / Answer

1. answer

PV=400/(1+0.03)^1+500/(1+0.03)^2+400/(1+0.03)^3

=1225.704

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