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1. Your friend offers to pay you $100 at the end of each of the next two years (i.e., one paymentof $100 one year from now,and a second payment of $100 two years from now).If there is no risk and the interest rate is 5%, what would you be willing to give him today in exchange for this sequence of future payments? (Round your answer to 2 decimal places)

Question 2

1. What is the future value in two years' time of $100 received today, if the interest rate is 10%? (Round to 2 decimal places)

Question 3

1. Suppose you want to fund an endowed chair for an Olin professor. You need to set aside enough money today to generate $100,000 a year into perpetuity. If the expected rate of return on your investmentis 6%, how much money do you need to invest today?

   $1.0million

   $1.25 million

   $1.50 million

   $1.75 million

   $2.0 million

Question 4

1. Suppose you want to fund an endowed chair for an Olin professor.The expected rate of return on your investment is6%.If you want the salary to start at$100,000in year1and grow at a3%rate into perpetuity,how much money do you need to invest today?(choose the closestanswer)

   $100k

   $1.67 mm

   $2.33 mm

   $3.33 mm

Question 5

1. I plan to retire in 25 years, after which I plan to live forever. If I want to have anannual income of $200k in retirement, how much do I need to save each year from now until retirement? Assume a constant interest rate of 8% per year from now until retirement, and 4% per year after retirement. (round your answer to the nearest dollar)

Question 6

1. You just won the lottery! You can take your winnings as a one-time payment of $1 mm today, or 10 payments of $140,000 each, made at the end of each of the next 10 years.If the interest rate is 8%, which option should you prefer?

   Up-frontpaymentisbetterbyabout$30,000

   Up-frontpaymentisbetterbyabout$60,000

   10 futurepayments is better by about $30,000

   10 futurepayments is better by about $60,000

Question 7

1. You just won the lottery! You can take your winnings as a one-time payment of $1 mm today, or 10 payments of $140,000 each, made at the end of each of the next 10 years.What interest rate will make you just indifferent between the two options?[Hint: use Excel to calculate the IRR of the investment opportunity where the benefit is the 10 annual payments and the cost is the foregone payout today.]

   4.55%

   5.31%

   5.85%

   6.64%

   6.95%

Question 8

1. Your friend asks to borrow$1,000today and promises to pay you back$1,150one year from now.What is the Internal Rate of Return of this loan?(express your answer as a percentage and round to one decimal places i.e.,ifyou think the answer is5.19%,enter5.2)

Question 9

1. Your friend asks to borrow $1,000 today and promises to pay you back $1,250 two years from now. What is the Internal Rate of Return of this loan? (Expressyour answer in percent and round your answer to one decimal place, i.e. enter "5.2" for 5.19%)

Question 10

1. Your friend asks to borrow $1,000 today and promises to pay you back $300 at the end of each of the next four years. What is the Internal Rate of Return of this loan? [Hint: Use Excel](express your answer as a percentage and round to one decimal places i.e., if you think the answer is 5.19%, enter 5.2)