1. (2pts) What is the difference between an annuity and a perpetuity cash flows? Give two examples of each.

2. (3pts) The present value of a $1,000 cash flow at the end of each month for 5 years at 8 percent annual interest is _________? Use the financial calculator to solve this problem.

Present value =

Show your calculator number and keys entered:

P/Y = ________

________ N ______ I/Y __________PMT _________FV CPT PV ________

3. (2) Which one of the following investments provides the highest effective rate of return? Explain why?

a. An investment that has a 10.6% nominal rate and quarterly annual compounding. 11.02%

b. An investment that has a 10% nominal rate and daily (365) compounding.10.51%

c. An investment that has a 10.2% nominal rate and annual compounding.10.2%

d. An investment that has a 10.7% nominal rate and semiannual compounding. 10.98%

e. An investment that has a 10.6% nominal rate and monthly compounding.11.3%

4. (3pts). Write here a short question that you think is important to know regarding time value of money and write a short reply.