1. PerpetuityIf an investment policy pays you $25,000 per year forever and you require 6% p.a. return on this investment, how much will you pay for this policy? What about a policy that pays $30,000 per year?2. EARCalculate the EAR in the following cases:APRcompoundingEAR10%Quarterly17%Monthly13%Daily9%Semi-annuallyHint: Use the EFFECT function in Excel.3. APRFind the APR for each of the following cases:APRcompoundingEARSemi-annually14.00%Monthly9.00%Weekly8.00%Daily13.00%Hint: Use the NOMINAL function in Excel.4. Present ValuesCalculate the present values for the two following cash flows:Discount RateDiscount Rate7.30%9.20%YearCash Flow from ACash Flow from B1$1,200$1,40021,1001,90038003400460043005. Annuity and PerpetuityYou are going to receive a 30-year annuity of $105,000. Your friend, Nancy, is going to receive a perpetuity of $105,000. If the appropriate interest rate is 7% p.a., how much more is Nancy’s cash flow worth than yours?6. Comparing Cash FlowsYou’ve just joined a new firm. They offered you two different salary arrangements:A. $6,100 per month for the next two years.B. $4,800 per month for the next two years, plus a $25,000 signing bonus.If the interest rate is 7% p.a., which arrangement do you prefer?7. Future ValuesAssuming an interest rate of 6.9% p.a., what is the future value of the following cash flows five years from now? What is the future value 10 years from now?Year to find value 10Interest rate6.9%YearCash flow2 $ 15,0003 24,0005 33,0008. Future ValuesAn insurance company is offering a new policy. The parent makes the following six payments to the insurance company, and no more payments after child’s sixth birthday. When the child reaches age 65, he/she receives $350,000. If the interest rate is 10% for the first 6 years, and 7% for all subsequent years, is the policy worth buying?Year Payment1 $ 8002 $ 8003 $ 9004 $ 9005 $ 1,0006 $ 1,000# of years until retirement 65Payout at retirement $ 350,000Interest rate 110%# of years 6Interest rate 27%# of years 591 11

1. PerpetuityIf an investment policy pays you $25,000 per year forever and you require 6% p.a. return on this investment, how much will you pay for this policy? What about a policy that pays $30,000 per year?2. EARCalculate the EAR in the following cases:APRcompoundingEAR10%Quarterly17%Monthly13%Daily9%Semi-annuallyHint: Use the EFFECT function in Excel.3. APRFind the APR for each of the following cases:APRcompoundingEARSemi-annually14.00%Monthly9.00%Weekly8.00%Daily13.00%Hint: Use the NOMINAL function in Excel.4. Present ValuesCalculate the present values for the two following cash flows:Discount RateDiscount Rate7.30%9.20%YearCash Flow from ACash Flow from B1$1,200$1,40021,1001,90038003400460043005. Annuity and PerpetuityYou are going to receive a 30-year annuity of $105,000. Your friend, Nancy, is going to receive a perpetuity of $105,000. If the appropriate interest rate is 7% p.a., how much more is Nancy’s cash flow worth than yours?6. Comparing Cash FlowsYou’ve just joined a new firm. They offered you two different salary arrangements:A. $6,100 per month for the next two years.B. $4,800 per month for the next two years, plus a $25,000 signing bonus.If the interest rate is 7% p.a., which arrangement do you prefer?7. Future ValuesAssuming an interest rate of 6.9% p.a., what is the future value of the following cash flows five years from now? What is the future value 10 years from now?Year to find value 10Interest rate6.9%YearCash flow2 $ 15,0003 24,0005 33,0008. Future ValuesAn insurance company is offering a new policy. The parent makes the following six payments to the insurance company, and no more payments after child’s sixth birthday. When the child reaches age 65, he/she receives $350,000. If the interest rate is 10% for the first 6 years, and 7% for all subsequent years, is the policy worth buying?Year Payment1 $ 8002 $ 8003 $ 9004 $ 9005 $ 1,0006 $ 1,000# of years until retirement 65Payout at retirement $ 350,000Interest rate 110%# of years 6Interest rate 27%# of years 591 11

1. PerpetuityIf an investment policy pays you $25,000 per year forever and you require 6% p.a. return on this investment, how much will you pay for this policy? What about a policy that pays $30,000 per year?2. EARCalculate the EAR in the following cases:APRcompoundingEAR10%Quarterly17%Monthly13%Daily9%Semi-annuallyHint: Use the EFFECT function in Excel.3. APRFind the APR for each of the following cases:APRcompoundingEARSemi-annually14.00%Monthly9.00%Weekly8.00%Daily13.00%Hint: Use the NOMINAL function in Excel.4. Present ValuesCalculate the present values for the two following cash flows:Discount RateDiscount Rate7.30%9.20%YearCash Flow from ACash Flow from B1$1,200$1,40021,1001,90038003400460043005. Annuity and PerpetuityYou are going to receive a 30-year annuity of $105,000. Your friend, Nancy, is going to receive a perpetuity of $105,000. If the appropriate interest rate is 7% p.a., how much more is Nancy’s cash flow worth than yours?6. Comparing Cash FlowsYou’ve just joined a new firm. They offered you two different salary arrangements:A. $6,100 per month for the next two years.B. $4,800 per month for the next two years, plus a $25,000 signing bonus.If the interest rate is 7% p.a., which arrangement do you prefer?7. Future ValuesAssuming an interest rate of 6.9% p.a., what is the future value of the following cash flows five years from now? What is the future value 10 years from now?Year to find value 10Interest rate6.9%YearCash flow2 $ 15,0003 24,0005 33,0008. Future ValuesAn insurance company is offering a new policy. The parent makes the following six payments to the insurance company, and no more payments after child’s sixth birthday. When the child reaches age 65, he/she receives $350,000. If the interest rate is 10% for the first 6 years, and 7% for all subsequent years, is the policy worth buying?Year Payment1 $ 8002 $ 8003 $ 9004 $ 9005 $ 1,0006 $ 1,000# of years until retirement 65Payout at retirement $ 350,000Interest rate 110%# of years 6Interest rate 27%# of years 591 11