1) Find PV for following cash flows using a discount rate of 5% per period, all periods are of the same (but unspecified) duration.

0_____1_____2_____3_____4

$5 $5 $5 $105

a) use your calculator, make sure that you know the procedure.

p/yr.=____, N=____, PMT=_____, i=____, FV=_____; and, answer PV=_____

b) using a spreadsheet, make sure that you know the procedure. Show spreadsheet printout.

c) use your intuition: PV=_____because ___________________________

d) (write either higher or lower in the blanks) If interest rates in the market generally rise, and/or the risk of this investment increases, we will likely use a _____________ discount rate, and the PV will be ____________________.

e) Use the cash flow diagram from above with the following data: Each period is 6 months long (i.e., the first CF of $5 occurs in 6 months, etc., and the final $105 CF occurs at the end of year 2). Use a stated rate of 5%/year, compounded semi-annually.

i) use your calculator, make sure that you know the procedure.

p/yr=____, N=____, PMT=_____, i=____, FV=_____; PV=________

ii) using a spreadsheet, make sure that you know the procedure. Show spreadsheet printout.