1.Below is an example of an annuity due or an ordinary annuity? Decide and compute the correct value.

What is the present value of six payments of $140 made on an apartment. Assume the first of the six payments occurs immediately before you can move in and the appropriate discount rate is 10%.

2. In the question below you are asked to compute payment, this is a common question in finance when you are computing the required payments on a loan.

If a 10-year ordinary annuity has a present value of $7,119, and if the interest rate is 5 percent, what is the amount of each annuity payment?

3. You are currently investing your money in an investment that has a nominal annual rate of 11 percent. How many years will it take for you to double your money?

4.Northern Air Lines is financing a new plane with a loan of $100,000 to be repaid in 5 annual end-of-year installments of $30,000. What annual interest rate is the company paying?

5. A business investment has the following expected cash flows:

Year Cash Flows

1 $10,000

2 $16,535

The discount rate is 7 percent. What is the investments present value?

6.You recently received a letter from a local bank that offers you a new credit card that has no annual fee. It states that the annual percentage rate (APR) is 13 percent on outstanding balances. Note that the annual percentage rate does not account for compounding, rather the APR is simply the periodic rate times the number of periods. What is the effective annual interest rate? (This rate is subject to monthly compounding.)

7.You are considering buying a new motorcycle. You are going to borrow $10,659. If you can negotiate a nominal annual interest rate of 6 percent (i.e. 6% equals the APR) and you wish to pay for the car over a 3-year period, what are your monthly car payments?

8.What is the present value (i.e. its current price) of a 5-year ordinary annuity paid by an insurance company with annual payments of $355, evaluated at a 3 percent interest rate?

9. Decisions in business depend on the information available. When we value assets we often search out three componets that impact value. Those three components include:

		1. the size of cash flows, the risk of cash flows and the timing of cash flows.
		2.the payments associated with an asset, the timing of those payments and the risk of the payments.
		3.the agency costs, the principal agent problem and moral hazard
		4. Both Answer 1 and Answer 2 are correct. 10.You have the opportunity to buy a perpetuity that pays $1,000 annually. Your required rate of return on this investment is 7.1 percent. What is the Present Value of the perpetuity (i.e. its current value)?