How Q1. Would you choose the discount rate to apply to these cash flows?

Answer: Economic Factors: Inflation, Future expectation, and the I/R for the economy. Risks: Systematic risk, Liquidity, Commodity, Price Risk (even foreign exchange risk) Q4) a) use financial calculator and input information FV= 35,000 N= 6 I/Y= 8.4 PMT= 0 PV= ? 21,572.1 b) FV= 35,000 N= 6 I/Y= ? 11.72% PMT= 0 PV= 18,000 c) FV= 35,000 N= 6 I/Y= ? 5.69788 * 2 = 11.3576 PMT= 0 PV= 18,000 5a. Ordinary Annuity b.N = 6 I/Y = 8.4 PV = 0 PMT = 3000 FV = ? = 22230.94 c.N = 6 I/Y = 8.5764 PV = 0 PMT=3000 press 2nd ICONV = 8.4 C/Y = 2 EFF = ? = 8.5764 d. N=6 e. N=6 I/Y = 8.4 I/Y=8.4 C/Y= 1 PV = 0 PMT = 0 I/Y=8.4 FV = -35000 FV = 22230.94 N = 12 FV = ? = 22330.08 PMT = ? = 4723.15 PV = 13701.94 f. annual P/Y = 2 PMT = 1500 FV= ? =22688.38 semiannual 22799.01 P/Y = 2 C/Y= 2 I/Y=8.4 N = 12 PMT = 1500 FV= ? = quarterly P/Y = 2 C/Y= 4 I/Y=8.4 N = 12 PMT = 1500 FV= ? = 22856.88 Q7A. Now consider the schedule of payments from Table 1. A. What is the value of his payment stream at the end of Year 6 if the payments are invested at 8.4 percent annually? (USING PAYMENT C) Answer: Year 0 1 2 3 4 5 6 N 6 5 4 3 2 1 0 FV @ the end of 6 years FORMULA= PAYMENT (1+R) ^n 1,000(1.084) ^6 = 1622.47 1,500(1.084) ^5 = 2245.11 2,000(1.084) ^4 = 2761.51 -03,500(1.084) ^2 = 4112.70 4,500(1.084) ^1 = 4878.00 5,500 +5500.00 21119.79 Q7B. What payment today (year 0) would be needed to accumulate the needed 35,000? (Assume that the payment for Year 1 through 5 remain the same as part a.) Answer: Year 0 1 2 3 4 5 6 N 6 5 4 3 2 1 0 Value at year 6 FORMULA= PAYMENT (1+R) ^n X 1,500(1.084) ^5 = 2245.11 2,000(1.084) ^4 = 2761.51 -03,500(1.084) ^3 = 4112.70 4,500(1.084) ^1 = 4878.00 5,500.00 + 5500.00 19497.32 STEP II 35,00019497.32 = 15,502.68 FV =15,502.68 N= 6 I/Y= 8.4 PMT= 0 PV=? 9,555.01 Q8) EAR a. = 8.763 b. FV = 29, 796.11 after six years

c. FV of ordinary annuity = 22,435.45 The difference in values exists because of TVM. The lump sum offers more original principle for interest to grow on, unlike the annuity payments. d. FV of annuity due = 24,401.47 The difference in values exists because of TWM. Payments received at the beginning of the year offers more time for interest to grow on the principle. An annuity due, in turn, offers an extra period's interest payment over the ordinary annuity. 10. The clients may decide to send there daughter to a state university costing $13,500 each year for four years of college, starting, in Year 6. They would borrow the funds at the beginning of each year at 10.2 % annul interest rate compounded monthly. They would pay the loan back with quarterly payments over 15 years with the first payment due the first quarter after graduation. Compute the amount of the quarterly payments amount to be repaid at the end of each quarter. Note this is a multiply cash flow problem. A time line is useful for appropriately tracking the cash flows. I/Y=2.6726 2nd Icon Nom=10.2 C/Y=12 Eff=10.6906/4=2.6726 You have to get the effective rate since rate is compounded monthly then divide by four since paid quarterly N=15yrs(4)=60 Multiply by 4 because the payments are quarterly and the loan is over 15 years PV=70,059.48 FV=PV(1+r/n)^n Year 6= 13,500(1+.102/12)^12*4 = 20,266.42 Year 7= 13,500(1+.102/12)^12*3 = 18,309.07 Year 8= 13,500(1+.102/12)^12*2 = 16,540.76 Year 9= 13,500(1+.102/12)^12*1= 14,943.23 PV=70,059.48 PV=13,500 which is the cost of the loan each year r=10.2 which you are borrowing at each year n= 12 compounded monthly ^n= periods and compounded monthly then multiply the number of years till done borrowing PMT=????? Enter in the components in TVM of calculator and solve for your payment 2,356.59