Compute the present value of a $100 cash flow for the following combinations of discount rates and times:
1. r = 8 percent. T = 10 years.
2. r = 8 percent. T = 20 years.
3. r = 4 percent. T = 10 years.
4. r = 4 percent. T = 20 years.

Compute the present value of a $100 cash flow for the following combinations of discount rates and times:
1. r = 8 percent. t = 10 years.
2. r = 8 percent. t = 20 years.
3. r = 4 percent. t = 10 years.
4. r = 4 percent. t = 20 years.

Assuming you meant $100 cash flow each each year for 10 or 20 years (depending on the question).

1) $671
2)$981.81
3)$811.09
4)$1,359.03

I agree too.

Suppose you can borrow money at 8.6% per year (APR) compounded semiannually or 8.4% per year (APR) compounded monthly. Which is the better deal?:rolleyes:

Suppose you can borrow money at 8.6% per year (APR) compounded semiannually or 8.4% per year (APR) compounded monthly. Which is the better deal?:rolleyes:

8.4% per year (APR) compounded monthly is the better deal.


At semi annually = EAR = (1+.086/2)^2-1 = .087849 = 8.78%
At monthly = EAR = (1+.084/12)^12-1 = .08731 = 8.73%

Therefore, the Effective Annual Rate (EAR) is LOWER for monthly than it is for semi annually.

And since the question is what is best for you, the consumer who is taking out a mortgage, you would want the lowest possible interest rate possible. Therefore, compounded monthly at 8.4% is the better choice.

Compute the present value of a $100 cash flow for the following combinations of discount rates and times:
1. r = 8 percent. T = 10 years.
2. r = 8 percent. T = 20 years.
3. r = 4 percent. T = 10 years.
4. r = 4 percent. T = 20 years.


1) $671
2)$981.81
3)$811.09
4)$1,359.03

I don't understand how you come to this. Can you give me an example of the 1st one and see if I can get the rest.

Thanks,

What is the present value of the following cash-flow stream if the interest rate is 6%
Year 1 Cash Flow $200
Year 2 Cash Flkow 400
Year 3 Cash Flow 300

[QUOTE=kmackey;2393642]What is the present value of the following cash-flow stream if the interest rate is 6%
Year 1 Cash Flow $200
Year 2 Cash Flow 400
Year 3 Cash Flow 300

What is the present value of the following cash-flow stream if the interest rate is 6%
Year 1 Cash Flow $200
Year 2 Cash Flow 400
Year 3 Cash Flow 300

If I invest investing $5,000 in an account paying 6.75 percent annually for three years. What is the interest-on-interest if interest is compounded?

1.) $1,012.50

2.) $1,082.38

3.) $82.38

4.) $69.88

Martha needs to have $25,000 in five years. If she can earn 8 percent on any investment, what is the amount that she will have to invest every year for the next five years: (Round to the nearest dollar.)

1.) $5,000

2.) $4,261

3.) $4,640

4.) $4,445

Morris has borrowed $27,850 from its bank at an annual rate of 8.5 percent. It plans to repay the loan in eight equal installments. Beginning at the end of next year. What is its annual loan payment? (Round to the nearest dollar.)

1.) $4,708

2.) $5,134

3.) $4,939

4.) $4,748

Chad wants to save $1,450 at the end of each of the next four years to use as a down payment for a car. If he can invest it at 6 percent, how much will he have at the end of four years/ (Round to the nearest dollar.)

1.) $6,343

2.) $5,918

3.) $6,019

4.) $6,589

Chad has $5,000 to invest in a small business venture. His partner has promised to pay him back $8,200 in five years. What is the return earned on this investment?

1.) 9.3%

2.) 8.7%

3.) 11.1%

4.) 10.4%

Chad is saving for a new car. He needs to have $21,000 for the car in three years. How much will he have to invest today in an account paying 8 percent annually to achieve his target? (Round to the nearest dollar.)

1.) $22,680

2.) $26,454

3.) $16,671

4.) $19,444

Your friend Tory is asking to borrow today with a promise to repay $6,665 in four years. If you could earn 7.45 percent annually on any investment you make today, how much will you be willing to lend Jackson today? (Round to the nearest dollar.)

1.) $5,000

2.) $4,035

3.) $4,500

4.) $5,150

You plan to save $1,250 at the end of each of the next three years to pay for a vacation. If you can invest it at 7 percent, how much will you have at the end of three years? (Round to the nearest dollar.)

1.) $3,750

2.) $3,918

3.) $4,019

4.) $4,589