Question

1. A potential investment pays $10 per year indefinitely. The appropriate discount rate for the potential investor is 10%. How is the present value of this cash flow calculated? 2. Suppose you have a choice of two equally risky annuities, each paying $1,000 per year for 20 years. One is an annuity due, while the other is an ordinary annuity. Which annuity would you choose? 3. Your college has agreed to give you a $10,000 tuition loan. As part of the agreement, you must repay $12,600 at the end of the 3-year period What interest rate is the college charging? 4. Tom Vu deposited $5,000 in a savings account that paid 8% interest compounded quarterly. What is the ellective rate of interest? 5. Joseph has just accepted a job as a stockbroker. He estimates his gross pay each year for the next 3 years is $35,000 in year 1, $21,000 in year 2, and $32,000 in year 3. What is the present value of these cash flows if they are discounted at 4%? 6. Christine has just purchased a used Mercedes for $18,995. She plans to make a $2,500 down payment on the new car. What is the amount of her monthly payment on the remaining loan if she must pay 12% annual interest on a 24-month car loan? 7. Daniel deposits $2,000 per year at the end of the year for the next 15 years into an IRA account that currently pays 7%. How much will Daniel have on deposit at the end of the 15 years? 8. Cecilia bought 100 shares of Minnesota Mining and Manufacturing in June 1987 for $38 a share for a total investment of $3,800. She sold the shares in June 1996 for $8,960. What is Cecilia's annual rate of return on her investment? 9. You borrow $10,000 to pay for your college tuition. The loan is amortized over a 3-year period with an interest rate of 18%. What is your remaining balance at the end of year 2? 10. Jill Clinton puts $1,000 in a savings passbook that pays 4% compounded quarterly. How much will she have in her account after 5 years?

Answer 1

1. Present value = $\frac{Cashflow}{discount. rate}=\frac{10}{0.1}=\boldsymbol{\$ 100}$ ​​​​​​

I can only answer 1 question at a time so I am solving question 1. Please do rate me and mention doubts in the comments section.