1.

Assume that you are offered an annuity that pays $500 at the end of each year for 5 years. You could earn 6% annually on your money in other investments with equal risk. What is the most you should pay for the annuity today?

a. $2,000.87

b. $2,106.18

c. $2,211.49

d. $2,322.06

e. $2,438.16

2. The Cheesecake Factory, an upscale casual dining restaurant chain, earned $1.88 per share in the year ending December 31, 2012, up from $0.64 in the year ending December 31, 2002. What was Cheesecake's annual EPS growth rate from 2002 through 2012? (Hint: Note that growth is over 10 years. To see this, draw a time line and note that there are 10 intervals (years) between the two dates.)

a. 8.88%

b. 9.67%

c. 10.50%

d. 11.38%

e. 12.69%

3. Assume that you must make a $1,000 payment one year from today. How much must you deposit today in a bank account that pays a 6% nominal rate, monthly compounding, to have the needed funds a year from now?

a. $941.91

b. $970.17

c. $999.27

d. $1,029.25

e. $1,060.13