1.

Compounding with Different Interest Rates A deposit of $350 earns the following interest rates: 8 percent in the first year, 6 percent in the second year, and 5 percent in the third year. What would be the third year future alue! "he ti#e line for this proble# is: $eriod 0 (ash )low *350 8% & 6% ' 5% 3 years + FV , PV - .& / i0 .& / j0 .& / k0 FV , $350 - .& / 0.080 .& / 0.060 .& / 0.050 , $350 - &.08 - &.06 - &.05 , $1'0.2& 2. Compounding with Different Interest Rates A deposit of $250 earns interest rates of 3 percent in the first year and &' percent in the second year. What would be the second year future alue! 3. Present Value with Different Discount Rates (o#pute the present alue of $&,000 paid in three years using the following discount rates: 6 percent in the first year, 2 percent in the second year, and 8 percent in the third year. PV , FV / 4.& / i0 .& / j0 .& / k05 PV , $&,000 / 4.& / 0.060 .& / 0.020 .& / 0.0805 , $&,000 6 4&.06 - &.02 - &.085 , $&,000 6 &.''131 , $8&6.32 4. Present Value with Different Discount Rates (o#pute the present alue of $5,000 paid in two years using the following discount rates: 8 percent in the first year and 2 percent in the second year. 5. Comparing Cash lows What would be #ore aluable, recei ing $500 today or recei ing $6'5 in three years if interest rates are 8 percent! Why!

!. Comparing Cash lows Which cash flow would you rather pay, $1'5 today or $500 in two years if interest rates are &0 percent! Why! ". #o$ing Cash lows What is the alue in year 3 of a $200 cash flow #ade in year 6 if interest rates are &0 percent! PV3 , FV6 6 .& / i07 PV3 , $200 6 .& / 0.&00.6*30 , $200 6 &.33&0 , $5'5.3' %. #o$ing Cash lows What is the alue in year 1 of a $&,000 cash flow #ade in year 6 if interest rates are 8 percent! &. #o$ing Cash lows What is the alue in year &0 of a $&,000 cash flow #ade in year 1 if interest rates are 3 percent! 1'. (ol$ing for )ime 8ow #any years .and #onths0 will it ta9e $' #illion to grow to $5 #illion with an annual interest rate of 2 percent! FVN , PV - .& / i0N $5 #illion , $' #illion - .& / 0.0207 .&.0207 , 5 6 ' .the #illions cancel0 ln.&.0207 , ln'.5 7 - ln&.02 , ln'.5 7 , ln'.5 6 ln&.02 , 0.3&6'3 6 0.06266 , &3.51 years , &3 years, 6.5 #onths :; use footnote 1 for#ula: 7 , ln.)< 6 $<0 6 ln.& / i0 , ln.$5,000 6 $',0000 6 ln&.02 , ln'.5 6 ln&.02 , &3.51 years , &3 years, 6.5 #onths 11. (ol$ing for )ime 8ow long will it ta9e $',000 to reach $5,000 when it grows at &0 percent per year! 12. At age 30 you in est $&,000 that earns 8 percent each year. At age 10 you in est $&,000 that earns && percent per year. =n which case would you ha e #ore #oney at age 60!

13. uture Value At age '5 you in est $&,500 that earns 8 percent each year. At age 10 you in est $&,500 that earns && percent per year. =n which case would you ha e #ore #oney at age 65! 14. What is the future alue of a $300 annuity pay#ent o er fi e years if interest rates are 3 percent! 15. uture Value of an *nnuit+ What is the future alue of a $200 annuity pay#ent o er si> years if interest rates are &0 percent! 1!. Present Value (o#pute the present alue of a $',000 deposit in year & and another $&,500 deposit at the end of year 3 if interest rates are &0 percent. 1". Present Value (o#pute the present alue of a $',000 deposit in year & and another $',500 deposit at the end of year 1 using an 8 percent interest rate. 1%. Present Value of an *nnuit+ What?s the present alue of a $300 annuity pay#ent o er fi e years if interest rates are 3 percent! 1&. Present Value of an *nnuit+ What?s the present alue of a $200 annuity pay#ent o er si> years if interest rates are &0 percent! 2'. Present Value of a Perpetuit+ What?s the present alue, when interest rates are 2.5 percent, of a $50 pay#ent #ade e ery year fore er! 21. Present Value of a Perpetuit+ What?s the present alue, when interest rates are 8.5 percent, of a $25 pay#ent #ade e ery year fore er! 22. Present Value of an *nnuit+ Due =f the present alue of an ordinary, 2*year annuity is $6,500 and interest rates are 8.5 percent, what?s the present alue of the sa#e annuity due! 23. Present Value of an *nnuit+ Due =f the present alue of an ordinary, 6*year annuity is $8,500 and interest rates are 3.5 percent, what?s the present alue of the sa#e annuity due!

24. uture Value of an *nnuit+ Due =f the future alue of an ordinary, 2*year annuity is $6,500 and interest rates are 8.5 percent, what is the future alue of the sa#e annuity due! 25. uture Value of an *nnuit+ Due =f the future alue of an ordinary, 6*year annuity is $8,500 and interest rates are 3.5 percent, what?s the future alue of the sa#e annuity due! 2!. Present Value of a Perpetuit+ A perpetuity pays $&00 per year and interest rates are 2.5 percent. 8ow #uch would its alue change if interest rates increased to 3 percent! @id the alue increase or decrease! 2". Present Value of a Perpetuit+ A perpetuity pays $50 per year and interest rates are 3 percent. 8ow #uch would its alue change if interest rates decreased to 2.5 percent! @id the alue increase or decrease!