1. You need $10,000 in 5 years. If you can earn 6% per year interest, how much must you put in the bank today to end up with $10,000? What time value of money question is being asked here?

2. Compute the present value of $1,700 due in 10 years at a discount rate of (a) 12%, and (b) 6.7%.

3. You want to buy a 3-year, $16,000 per year annuity. Metropolitan Life evaluates this annuity at 7.5%. How much should you pay for the annuity?

4. What is the present value of a perpetuity of $280 per year if the appropriate discount rate is 7 percent? What if the rate rose to 14 percent?

5. XYZ, Inc.s pension obligations are $16 million each year for the next 3 years. What is the current cost of this liability today? The discount rate is 7.5%

6. Find the amount to which $500 will grow in five years if the investment earns 9.6% compounded (a) annually, (b) semiannually, and (c) monthly.

7. If the interest rate is 8 percent, what is the present value of each of the following cash flow streams?

Year 1Year 2Year 3

Cash Flow A$100$200$400

Cash Flow B$400$200$100

8. You borrow $24,000 from the bank at 9 percent to purchase a new car. This loan is to be repaid in monthly payments of $763.19 for three years. Calculate the interest paid on the first payment, and the total interest paid over the life of the loan. Also, calculate the annual rate, the periodic rate, and the effective annual rate.