1. Suppose a firm has an outflow of $100,000 at time 0. Inflows of $20,000, $10,000 and $30,000 are effected during time 1, 2 and 3, respectively. If interest rate is 10% for the first two periods, and 8% for the third period, draw a timeline and illustrate the value of cash owe of the firm for each period.

2. (a) You have deposited $1,000 in your bank account that pays an interest rate 5% per year. Write an equation that shows how much money you will have at the end of 4th year if your deposit is under a fixed certificate. (b) Why earn interest on an interest called compound interest? (c) Briefly explain the equation, FV1 = PV + INT