1) (Present value of an uneven stream of payments)
You are given two investment alternatives to analyze. The cash flows from these investments are as follows:
Investment A:
Year 0 $0
Year 1 $10,000
Year 2 $20,000
Year 3 $30,000
Investment B
Year 0 $1,000
Year 1 $3,000
Year 2 $10,000
Year 3 $10,000
Year 4 $40,000
Assuming a 20 percent discount rate, find the present value and future value of each investment?
2) (Nonannual compounding using a calculator)
Frank is thinking about trading boats. He estimates he will still have to borrow $35,000 to pay for his new boat. How large will Frank’s monthly boat loan payment be if he can get a 6-year loan from the university’s credit union at 5%?
3) Suppose you currently have $5,000 in your savings account, and your bank pays interest at a rate of 0.75% per month. If you make no further deposits or withdrawals, how much will you have in the account in 7 years?
4) You are looking to buy a car and can afford to pay $450 per month. If the interest rate on a car loan is 0.65% per month for a 60-month loan, what is the most expensive car you can afford to buy?
5) What’s the future value of a 7%, 5-year ordinary annuity that pays $500 each year? If this was an annuity due, what would its future value be?