1. a) What is the present value of the following uneven cash flow stream? The appropriate interest rate is 12.50%, compounded annually. Note that the final cash flow represents a project where there may be reclamation or other end of project costs which are greater than any final income and/or salvage value. Note that the final cash flow represents a project where there may be reclamation or other end of project costs which are greater than any final income and/or salvage value. Year0= $0, Year1= $1200, Year2=$1400, Year3= $1500, Year4= -850

Cash flow inputs, 0, 1200, 1400, 1500, -850

b) What annual interest rate will cause $14,000 to grow to $34,000 in fourteen years (assume annual compounding)? Show your answer to 2 decimals

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(c)Will the future value be larger or smaller if we compound an initial amount more often than annuallyfor example, every 3 months (quarterly) holding the stated interest rate constant? Explain your answer

2. a) What is the future value of $14,000 (deposited today, no other deposits made) after fourteen years under 5.60% annual rate, with semi-annual compounding

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I/Y=

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b). What is the effective annual rate for 5.60% annual rate with interest compounded on a semiannual basis? Be sure to show your EAR answer to 2 decimals, that is xx.xx%

c). What is the future value of $14,000 (as above) after fourteen years under 5.60% annual rate, with quarterly compounding?

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I/Y=

PV=

PMT=

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D

d). What is the effective annual rate (EAR) for 5.60% annual interest rate with quarterly compounding?

e). Explain how the effective annual rate changes based on the number of compounding periods per year.