LUMP –SUM

What is the future value of $1000 in 5 years if the interest is compounded at

6% annually?

What is the present value of $1000 received in 3 years if the current

opportunity rate of return is 7%?

ANNUITY

What is the future value of a 5-year ordinary annuity with annual payments
of $200, evaluated at a 15 percent interest rate?

What is the current value of a security that pays $500 per year for 4 years if
similar investments now earn 12%.

If a 5-year ordinary annuity has a present value of $1,000, and if the interest
rate is 10 percent, what is the amount of each annuity payment?

UNEQUAL CASH FLOWS

A real estate investment has the following expected cash flows:

Year Cash Flows
1 $10,000
2 25,000
3 50,000
4 35,000

The discount rate is 8 percent. What is the investment’s present value?

PERPETUITY

You have the opportunity to buy a perpetuity that pays $1,000 annually. Your
required rate of return on this investment is 15 percent. You should be
essentially indifferent to buying or not buying the investment if it were
offered at a price of

EFFECTIVE ANNUAL RATE

Which of the following investments has the highest effective annual rate
(EAR)? (Assume that all CDs are of equal risk.)

a. A bank CD that pays 10 percent interest quarterly.

b. A bank CD that pays 10 percent monthly.
c. A bank CD that pays 10.2 percent annually.
d. A bank CD that pays 10 percent semiannually.
e. A bank CD that pays 9.6 percent daily (on a 365-day basis).

If $100 is placed in an account that earns a nominal 4 percent, compounded

quarterly, what will it be worth in 5 years?

ANNUITY DUE

You are contributing money to an investment account so that you can

purchase a house in five years. You plan to contribute six payments of
$3,000 a year. The first payment will be made today (t = 0) and the final
payment will be made five years from now (t = 5). If you earn 11 percent in
your investment account, how much money will you have in the account five
years from now (at t = 5)