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Chapter 9, problem 9.1:
Find the following values for a lump sum assuming annual compounding:
a The future value of $500 invested at 8 percent for one year
b The future value of $500 invested at 8 percent for five years
c The present value of $500 to be received in one year when the opportunity cost rate is 8 percent
d The present value of $500 to be received in five years when the opportunity cost rate is 8 percent
Problem 9.4:
Find the following values assuming a regular, or ordinary, annuity:
a The present value of $400 per year for ten years at 10 percent
b The future value of $400 per year for ten years at 10 percent
c The present value of $200 per year for five years at 5 percent
d The future value of $200 per year for five years at 5 percent
Problem 9.6:
Consider the following uneven cash flow stream:
Year Cash flow
0 $0
1 $250
2 $400
3 $500
4 $600
5 $600
a What is the present (Year 0) value if the opportunity cost (discount) rate is 10 percent
b. Add an outflow (or cost) of $1,000 at Year 0. What is the present value (or net present value) of the stream?
Problem 9.7:
Consider another uneven cash flow stream:
Year Cash flow
0 $2,000
1 $2,000
2 $0
3 $1,500
4 $2,500
5 $4,000
a What is the present (Year 0) value of the cash flow stream if the opportunity cost rate is 10 percent?
b What is the value of the cash flow stream at the end of Year 5 if the cash flows are invested in an account that pays 10 percent annually?
Problem 9.9:
Assume that you just won $35 million in the Florida lottery, and hence the
state will pay you 20 annual payments of $1.75 million each beginning
immediately. If the rate of return on securities of similar risk to the lottery
earnings (e.g., the rate on 20-year U.S. Treasury bonds) is 6 percent, what is
the present value of your winnings?
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