4.

What is the value on 31/0112004 of the following cash flows (Assume 10% EAR discount
rate)? Note: Assume there were 365 days in 2004.
Date Cash received Amount of Cash
3 ”1212004 $100
31112/2005 $100
31f12f2006 $100
31/121'2007 $100
3111212008 $100 [0.0 l ___ kg] 3- $ 3 11033 I
A) $292.60 ”(1 _: f x— QJ )
B) $321.86 "'/""°’ ) ZZQ’
C) $379.08 .. jz‘il‘lé
. a 95 71? (l ' 1 > --
$332,16 PVCy/ol/ j; 3}? 3 ___--—:-:::—-‘"
E) None of the above.
5. You are going to deposit $800 into an account at the beginning of each year for the next 20
years (First payment is today). Starting in year 21, you will begin receiving perpetuity from
the account, First payment from the perpetuity will be at the beginning of year 21. If the
account pays 14% (EAR), how much will you receive in each year from this perpetuity?
(ID 1 lq
63> $10,194.79 Fv = L; _, ___._- *Q‘ 46, 3172317699
B) $11,622.06 “7 019 I but” I “0x0 )
C) $13 249.15 he, fié' “If
a f Mr
D) $94,636.80 “Q It, 1045” A" 4 k 2 $- 10/ 9 7.1.25
B) $592,962.39 FV” 6 27; .___,> 9“ 049; 1101949 - _f__=___,_.—
6, Which of the following provides the lowest annual interest?
A) 21% Effective two-year rate __.> [a 2 it
B) 10% APR compounded annually “7 “Si i“ 1
C 9 % APR compounded semi-annually 57 74° f M"
@ 8.5% APR compounded daily (Assume 365 days in a year) «a 3-41} flfl"
Both A and B. ff”
7. The greater the agency problem in a corporation,
A) the lower the discount rate investors will apply when discounting its expected future
cash flows.
the higher the discount rate investors will apply when discounting its expected
future cash flows.
C) the lower the coupon rate investors will demand from the corporation’s bonds.
D) Both A and C
E) The difference in agency problem will not affect the discount rate.
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